Assume demand is steady throughout year

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PBK uses 50 bags of whole bean coffee every month, assume demand is steady throughout year. PBK has signed contract to purchase coffee from Phis Roasters for price of $25 per bag and $85 fixed cost for every delivery independent of the order size. The holding cost due to storage is $1per bag per month. PBK managers figure their cost of capital is approximately 2 percent per month.

Suppose that a South American import/export company has offered PBK a deal for the next year. PBK can buy a years worth of coffee directly from south America for $20 per bag and a fixed cost for delivery of $500. Assume the estimated cost for inspection and storage is $1 per bag per month and cost of capital is approximately 2 percent per month. Should PBK order from Phish Roasters or the South American import/export company? Quantitatively justify your answer.

Reference no: EM131278438

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