(Economic Order Quantity) UltraFit Organic Foods orders many of its grocery items in lot sizes of 50 units. Average demand for organic coffee is 20,000 one-kilogram bags per year. Ordering cost is $12.50 per order, with an average purchasing price of $8. Annual inventory carrying cost is $1.50 per one-kilogram bag of coffee.
- What is the economic order quantity for coffee?
- What are the annual cost savings if the shop orders the economic order quantity as opposed to the 50-unit lots?
- If the coffee beans have a shelf life of only 90 days, what is the optimal order size?