Professional Documents
Culture Documents
R4
Q3. Given your answer in (a), how many months of supply of coffee does PBK
have on average?
Q4. On average, how many dollars per month does PBK spend to hold coffee
(including cost of capital)?
Q5. Suppose Phish Roasters is offered a 3.5% discount off the regular price of
$25 if PBK purchased at least 500 bags at a time. If PBK took this deal, how
many bags should they order each time.
Q6. If PBK took the deal described in Q5, then what would be their annual total
costs (inventory holding, ordering and purchasing costs)?
2* K * R
h
Here, order cost (K) is $85, flow rate (R) is 50
$1 of storage plus
$25 * 2% = $0.50 cost of capital.
Because the average inventory is 37.6 bags, the
KR 1
= + h Q + Rc
Q 2
Purchasing costs
c is per-unit cost
Setup Holding
Total monthly costs are higher when they take the deal!
If PBK ordered even more than 500, it only gets worse for the company (you can
verify this yourself).
Within the constraint of the question, however, we can suppose that the manager
is informed that PBKs CEO has already accepted this deal.
Since the question asks if PBK took this deal, the manager should minimize the
damage and order just 500.
Total cost
KR 1
= + h Q + Rc
Q 2
85 50 500
=
500
+
2
( )
1 + 2% 25 (1 0.035) + 50 25 (1 0.035)
A salt production facility on the island of Vanuatu has one salt pan (pink
water in left photo) covering 6 acres.
The pan is flooded with sea water, and evaporation leaves the pan dry,
covered with sea salt and ready for harvesting
Evaporation of a pan takes 10 weeks.
Harvesting is done by bulldozers.
A single bulldozer requires 3 days to harvest each acre of salt and this
facility has 2 of them.
Harvesting can occur any day during the week and clearly the pan cannot
be flooded during harvesting.
Each acre yields 1000 cubic meters of salt. After salt is harvested from a
pan, it is flooded with sea water to begin the process again.
70 days 9 days
Evaporate Harvest
70 days 9 days
Evaporate Harvest
70 days 9 days
Evaporate Harvest
Harvest
6000 m3 / 9 days = 667 m3 / day
u
How much salt could they produce if they have 7 salt pans, each 6 acres?
How much salt can they produce if they have 10 salt pans, each 6 acres?
How much salt can they produce if they have 2 salt pans, each 3 acres?
Why is this different than one 6 acre salt pan?
70 days 9 days
Evaporate Harvest
70 days 9 days
Evaporate Harvest
Evaporate Harvest