Powered by Koffee (PBK) is a new campus coffee store. PBK uses 50 bags of whole bean coffee every month, and you may assume that demand is perfectly steady throughout the year.

PBK has signed a yearlong contract to purchase its coffee from a local supplier, Phish Roasters, for a price of $20 per bag and an $65 fixed cost for every delivery independent of the order size. The holding cost due to storage is $1 per bag per month. PBK managers figure their cost of capital is approximately 2 percent per month.

(a) What is the optimal order size, in bags?

(b) Given your answer in (a), how many times a year does PBK place orders?

(c) Given your answer in (a), how many months of supply of coffee does PBK have on average?

(d) On average, how many dollars per month does PBK spend to hold coffee (including cost of capital)?

Suppose that a South American import/export company has offered PBK a deal for the next year. PBK can buy a year's worth of coffee directly from South America for $25 per bag and a fixed cost for delivery of $500. Assume the estimated cost for inspection and storage is $1 per bag per month and the cost of capital is approximately 2 percent per month.

(e) Should PBK order from Phish Roasters or the South American import/export company?

Phish Roasters The South American import/export companyPowered by Koffee (PBK) is a new campus coffee store. PBK uses 50 bags of whole bean coffee every month, and you may assume that demand is perfectly steady throughout the year. PBK has signed a yearlong contract to purchase its coffee from a local supplier, Phish Roasters, for a price of $20 per bag and an $65 fixed cost for every delivery Independent of the order size. The holding cost due to storage is $1 per bag per month. PBK managers figure their cost of capital is approximately 2 percent per month. (a) What is the optimal order size, In bags? (Round the answer to 2 decimal places.) * Answer is complete but not entirely correct. EOQ 75.00 * (b) Given your answer in (a), how many times a year does PBK place orders? (Do not round Intermediate calculations. Round the answer to the nearest whole number.) Answer is complete and correct. Order frequency is times per year. (c) Given your answer in (a), how many months of supply of coffee does PBK have on average? (Do not round Intermediate calculations. Round the answer to 2 decimal places.) * Answer is complete but not entirely correct. Months of supply 1.50 * months (d) On average, how many dollars per month does PBK spend to hold coffee (Including cost of capital)? (Do not round Intermedlate calculations. Round the answer to 2 decimal places.) * Answer is complete but not entirely correct. Inventory costs per month $ 56.25 x per monthstri Step 1 1b. To calculate the no. of cider per year, we need to divide the annual demand by the order size. Given that, Demand = 50 bags/ month Thus : Fixed cost = $ 65 No. orders = Annual demand Holding cost = $ 1+ 2% of 20 = 1.4 EDG To solve this problem, we'll use the = 50X 12 - 600 6 % economic order gly ( EOQ ) model to determine the optimal order size = 8 order and compare the cost of ordering from Phish Roasters and the South C . To calculate the months of American import / export company Supply, we divide the EOQ by the monthly demand 9 . The formula to calculate optimal order siBe EGG ( EO QP) Is Months of Supply = EOQ D DEOQ = 2DS = 68 =1.36 50 Where D - Demand ( bags per month) - 1. 4 months S - cost per order supply H - Holding cost per bag d. To get monthly holding cost , EOQ = 2x 50X 65 650 we multiply the average 1.4 1- 4 Inventing level by holding cost per bag per month 2 68.14 - 68 bags Av. Inventory level = EOD = 68 = 68 bags /2 = 34 bag Monthly holly ca = Av. m. Inventory levelx holding co per month = 34 x 1.4= 47.6 = $ 47.6