Question

"Jack owns a local trucking company. With fuel costs being expensive, Jack wants to evaluate how much fuel, on average, he should store in his 8,000 gallon fuel tank. Each year Jack uses 85,000 gallons of diesel (usage is spread evenly throughout the year). Jack knows with certainty that he can have a load of fuel delivered in 5 days. The price of fuel is $2.00 per gallon and there is a separate $50 ordering fee per order. Jack thinks his holding cost per unit is 15%. What is Jack's economic order quantity (EOQ) of fuel in gallons using the information above? Round your answer to the next highest whole number."

Answer 1

Answer:

5,322.91 units

Explanation:

Given data

Annual demand = 85,000 gallons

Price of fuel = $2

Time = 5 days

Ordering fee = $50 per order

Holding cost per unit = 15%

So the holding cost is = $2 × 15% = $0.3

a. The computation of the economic order quantity is shown below:

$= \sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}$

$= \sqrt{\frac{2\times \text{85,000}\times \text{\ 50}}{\text{\ 0.30}}}$

= 5,322.91 gallons

Hence, the economic order quantity (EOQ) of fuel in gallons is 5,322.91