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IEOR 150, Fall 2010
Homework 1
Note.
For all problems asking for the optimal order/production cycles, please answer in YEARS.
1. (Problem 4.10 in the textbook; 20 points) A specialty coﬀeehouse sells Colombian coﬀee at a fairly
steady rate of 280 pounds annually. The beans are purchased from a local supplier for $2.40 per pound.
The coﬀeehouse estimates that it costs $45 in paperwork and labor to place an order for the coﬀee,
and holding costs are based on a 20 percent annual interest rate.
(a) Determine the optimal order quantity for Colombian coﬀee.
(b) What is the time between placement of orders?
(c) What is the average annual cost of holding and setup due to this item?
(d) If replenishment lead time is three weeks, determine the reorder level based on the onhand
inventory.
Note.
Please assume there are 52 weeks in one year.
2. (Problem 4.13 in the textbook; 10 points) Consider the coﬀeehouse discussed in the previous problem.
Suppose that its setup cost for ordering was really only $15. Determine the error made in calculating
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This document was uploaded on 01/13/2011.
 Fall '09

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