# 8. Groundz Coffee Shop uses 4 pounds of a specialty tea weekly; each pound costs

Friday July 8, 2022

8. Groundz Coffee Shop uses 4 pounds
of a specialty tea weekly; each pound costs \$16. Carrying costs are \$1 per
pound per week because space is very scarce. It costs the firm \$8 to prepare an
order. Assume Groundz is open 52 weeks per year and closed on Mondays. a. (5 points)How many pounds
should Groundz order at a time? b. (10 points)What is the
total annual cost of managing this item? c. (7 points)The lead time
for orders to arrive is 1.5 (work) weeks. If the standard deviation of weekly
demand is 1.2 pounds and Groundz wishes to achieve at least a 98% customer
satisfaction level what is the reorder point? d. (10 points)Groundz has
been contacted by a new supplier who is offering to sell the same tea for \$12
per pound. In return Groundz can place orders only once a month. Inventory and
ordering costs would remain the same. Is it more cost-effective for Groundz to
switch suppliers? Should Groundz switch? Midterm 2 Page 5 DS 412 College
of Business SFSU Fall 2005 Theresa M. Roeder 9. (30 points)A high school
student is trying to decide what to do after high school. She could get a job
where she expects to make an average of \$25000 per year over the next 10
years. She assumes she will have no problems finding a job. She can attend an
Ivy League school which will cost \$30000/year for 4 years if she gets a
degree in the liberal arts or business. If she decides to major in engineering
she concludes (perhaps incorrectly) that her studies will be much more
stressful and that she should assign an extra \$10000/year in costs. There is
a 50% chance that she will get into an Ivy League school. If she does not she
can either get a job immediately or go to a local state school. If she gets an
Ivy League degree she anticipates an average salary of \$60000/year if she
does not get an engineering degree or \$80000/year if she does. There is an
80% chance she will get such a job after she graduates. If not she can find
the type of job she would have gotten had she not gone to college. If she
attends a state school her costs will be \$10000/year for liberal
arts/business and \$15000/year for engineering. She assumes there is a 95%
chance she will be accepted at a state school and a 75% chance she will be
able to find a position after graduating. She anticipates average salaries of
\$50000/year and \$65000/year depending on her major. Assume there are no time
value of money concerns. Draw the decision tree and make recommendations on
which decisions are the most appropriate.
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