A popular, local coffeeshop in one of the suburbs of New York City (NYC) estimates they use 3,000 pounds of coffee annually. They have to determine how many pounds to order each time in order to minimize their total annual cost. a. Determine the optimal size of the order assuming an EOQ model with a holding cost of $10 per pound annually and an ordering cost of $100. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

The EOQ or economic order quantity is the quantity of goods that must be ordered to reduce and minimize the inventory related costs. The EOQ can be calculated using the formula provided in attachment.

Using the formula in the attachment, we calculate the EOQ to be,

EOQ = √[(2 * 3000 * 100) / 10]

EOQ = 244.948974 rounded off to 244.95 units

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andromache andromache · Answer 2 · 2022-04-14T11:04:34+02:00

a. The optimal size of the order where we assume that the Economic Order Quantity model should be considered as the 244.95 pounds.

Calculation of the optimal size:

Since

It estimates they use 3,000 pounds of coffee annually.

The holding cost is $10 per pound

And the ordering cost of $100

So,

EOQ

= √[(2 * Annual demand * ordering cost) / carrying cost]

= √[(2 * 3000 * 100) / 10]

EOQ = 244.948974

= 244.95 units

Hence a. the optimal size of the order assuming an EOQ model should be 244.95 pounds.

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