Question

The Metropolitan Bus Company (MBC) purchases diesel fuel from American Petroleum Supply. In addition to the fuel cost, American Petroleum Supply charges MBC $225 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 $0.07 per month, or $0.84 per year; and annual fuel usage is 105,000 gallons. MBC buses operate 210 days a year.

1. What is the optimal order quantity for MBC?
   
   Q* =
   
2. How frequently should MBC order to replenish the gasoline supply?
   
   orders per year =?
   
3. The MBC storage tanks have a capacity of 15,000 gallons. Should MBC consider expending the capacity of its storage tanks?
   
   Metropolitan Bus Company - Select your answer -needs to expanddoes not need to expandItem 3 the capacity of its storage tanks.
   
4. What is the reorder point?
   
   r =  gallons

Please SHOW THE WORK. Thank you!

Answer 1

Given

American Petroleum Supply charges MBC or ORDER COST = $225

Lead time (L) = 10 days

holding charges (H) = $0.84 per year

nnual fuel usage is 105,000 gallons

MBC buses operate 210 days a year.

A)

the optimal order quantity for MBC =?

EOQ = 7500

B)

Expected number of orders

= 105000 / 7500

= 14 orders per year

C)

The MBC storage tanks have a capacity of 15,000 gallons

the EOQ is 7500

hence the MBC should not go for expansion of capacity of storage.

D)

Reorder point

ROP = d * L

d = D/ number of days

= (105000/210) *10

=500*10

= 5000 units