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You make a pot of coffee every morning using beans from your favorite coffee shop. Unfortunately, they dont have a location nearby, so you periodically order on their website. You go through 1 bag of beans every week and each bag costs $15. Every order has a fixed shipping fee of $10.

You live in a small apartment without much storage space. Furthermore, you would prefer to have fresh coffee. You estimate that every week that a bag of coffee is stored in your apartment costs you $3 in space and spoilage.

Assume there are 52 weeks in the year.

a) What is the ideal order quantity? Assume you can order fractions of a bag. Answer: Q = 2.58 bags

b) How frequently do you place an order? Answer: Place an order every 2.58 weeks

c) What are your total annual costs under the ideal order quantity? Answer: $1182.79

d) Suppose you can only order whole bags of beans. How many bags should you order each time and what is the new total annual costs?

Answer: You should order 3 bags each time. New annual cost is $407.33+780 = 1187.33

e) Under your solution for part d, on average how many bags will you have in your apartment at any given time?

Answer: Avg inventory level = 1.5 bags