Question

The Metropolitan Bus Company (MBC) purchases diesel fuel from American Petroleum Supply. In addition to the fuel cost, American Petroleum Supply charges MBC $250 per order to cover the expenses of delivering and transferring the fuel to MBC's storage tanks. The lead time for a new shipment from American Petroleum is 10 days; the cost of holding a gallon of fuel in the storage tanks is $0.04 per month or $0.48 per year, and annual fuel usage is 150,000 gallons. MBC buses operate 300 days a year.a. What is the optimal order quantity for MBC?b. How frequently should MBC order to replenish the gasoline supply?c. The MBC storage tanks have a capacity of 15,000 gallons. Should MBC consider expanding the capacity of its storage tanks?d. What is the reorder point?

Answer 1

Answer:

A.12,500

B. 12 times

C.If The MBC storage tanks have a capacity of 15,000 gallons there is no need of expanding the storage tanks reason been that the Economic order quantity is lesser than the storage capacity of the tank.

D. 5,000 gallons

Explanation:

a.)

=√2×Demandquantity×Orderingcost÷Holding cost

=√2×150,000×250÷480

=12,500

b.)

=Demand quantity÷ Economic Ordering quantity

=150,000÷12,500

=12 times

c.) If The MBC storage tanks have a capacity of 15,000 gallons there is no need of expanding the storage tanks reason been that the Economic order quantity is lesser than the storage capacity of the tank.

d.) The reorder point can be calculated as follows;

= Lead time× Average

Average demand quatity =1,500/300

Reorder point 10×500

=5,000 gallons

Answer 2

A. The optimal order quantity is 12,500.

B. The frequency is 12 times.

C.There is no need of expanding storage tanks.

D. The reorder point is 5,000 gallons.

Calculation of the order quantity, frequency, reorder point:

a.

The order quantity should be

=√2×Demandquantity×Orderingcost÷Holding cost

=√2×150,000×250÷480

=12,500

b.)

The frequency should be

=Demand quantity÷ Economic Ordering quantity

=150,000÷12,500

=12 times

c.) In the case when The MBC storage tanks have a capacity of 15,000 gallons so there is no need of expanding the storage tanks  because Economic order quantity should be lower than storage capacity of the tank.

d.) The reorder point should be

= Lead time× Average

here,

Average demand quatity =1,500/300

So,

Reorder point 10×500

=5,000 gallons

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