Peet’s Coffees in Menlo Park, California, sells Melitta Number 101 coffee filters at afairly steady rate of about 60 boxes of filters monthly. The filters are ordered from asupplier in Trenton, New Jersey. Peet’s manager is interested in applying some inventorytheory to determine the best replenishment strategy for the filters.Peet’s pays $2.80 per box of filters and estimates that fixed costs of employee timefor placing and receiving orders amount to about $20. Peet’s uses a 22 percent annualinterest rate to compute holding costs.a. How large a standing order should Peet’s have with its supplier in Trenton, and howoften should these orders be placed?

Practical Management Science
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Author:WINSTON, Wayne L.
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Chapter2: Introduction To Spreadsheet Modeling
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Peet’s Coffees in Menlo Park, California, sells Melitta Number 101 coffee filters at a
fairly steady rate of about 60 boxes of filters monthly. The filters are ordered from a
supplier in Trenton, New Jersey. Peet’s manager is interested in applying some inventory
theory to determine the best replenishment strategy for the filters.
Peet’s pays $2.80 per box of filters and estimates that fixed costs of employee time
for placing and receiving orders amount to about $20. Peet’s uses a 22 percent annual
interest rate to compute holding costs.
a. How large a standing order should Peet’s have with its supplier in Trenton, and how
often should these orders be placed?

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