IEOR 150 Midterm I
Fall 2009
Problem 1 (25 points)
A coffee shop in San Francisco sells Cappuccino at a fairly steady rate of 1000 pounds annually. Assume one
pound of Cappuccino is made from 0.25 pound of some certain coffee beans. The beans are purchased from a
local supplier for $2.70 per pound. The setup cost for this coffee shop to place an order from its supplier is
$50. The holding cost for coffee beans is based on a 20 percent annual interest rate.
a. Determine the optimal order quantity for the coffee beans. (10 points)
b. If the replenishment lead time is three weeks, determine the recorder level based on the onhand inventory.
(5 points)
c. The current reorder policy is to buy the coffee beans once a year, what is the additional cost incurred by this
policy. (10 points)
Problem 2 (20 points)
Gamestop buys Wii from Nintendo. Since Wii sells very well in US, Nintendo wants to discourage large
amount purchases, so a reverse quantity discount is applied. In particular, when the order quantity is less than
1500 (include 1500), the unit cost is $150, while if the order quantity is higher than 1500, the unit cost is $160.
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 Fall '09
 Cumulative distribution function, Wii, coffee beans, Gamestop

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