A gourmet coffee shop in downtown San Francisco is open 200 days a
year and sells an average of 75 pounds of Kona cof- fee beans a day.
(Demand can be assumed to be distributed normally with a standard
deviation of 15 pounds per day). After ordering (fixed cost = $16 per
order), beans are always shipped from Hawaii within exactly 4 days.
Pea-pound annual holding costs for the beans are $3.
a) What is the economic order quantity (EOQ) for Kona coffee beans?
b) What are the total annual holding costs of stock for Kona coffee beans?
c) What are the total annual ordering costs for Kona coffee beans?
d) Assume that management has specified that no more than a 1% risk
during stock out is acceptable. What should the reorder point (ROP) be?
e) What is the safety stock needed to attain a 1% risk of stock out
during lead time? What is the annual holding cost of maintaining the
level of safety stock needed to support a 1% risk?
g) If management specified that a 2% risk of stock out during lead
time would be acceptable, would the safety stock holding costs decrease