Question

The General Chemical Company uses 150,000 gallons of hydrochloric acid per month. The cost of carrying the chemical in inventory is 50 cents per gallon per year, and the cost of ordering the chemical is $150 per order. The firm uses the chemical at a constant rate throughout the year. The chemical's economic order quantity is
A) 32,863 gallons.
B) 11,619 gallons.
C) 9,487 gallons.
D) 1,900 gallons.

Answer 1

Answer:

ROQ will be 32863 gallons

So option (a) will be the correct answer

Explanation:

We have given that company uses 150000 gallons of hydrochloric acid per month

Ordering cost = $150

And the holding cost = $0.5

We know that 1 year = 12 month

So annual demand = 12 ×150000 = 1800000

We have to fond the economic order quantity EOQ

We know that EOQ is give by

$EOQ=\frac{2\times annual\ demand\ \times ordering\ cost}{holding\ cost}=\frac{2\times 1800000\times 150}{0.5}=32863.35=3286gallons$

So option (a) will be correct answer