Question

ack owns a local trucking company. With fuel costs being expensive, Jack wants to evaluate how much fuel, on average, he should store in his 10,000 gallon fuel tank. Each year Jack uses 185,000 gallons of diesel (usage is spread evenly throughout the year). Jack knows with certainly that he can have a load of fuel delivered in 5 days. The price of fuel is $1.93 per gallon and there is a separate $100 ordering fee per order. Jack thinks his holding cost per unit is 25%. What is Jack's economic order quantity (EOQ) of fuel in gallons using the information above

Answer 1

Answer:

8,756.94 gallons

Explanation:

The computation of the economic order quantity is shown below:

As we know that

Economic order quantity is

$= \sqrt{\frac{2\times A\times O}{C} } \\\\= \sqrt{\frac{2\times 185,000\times \ 100}{\ 1.93\times 25\%} } \\\\= \sqrt{\frac{37,000,000}{0.4825} }$

= 8,756.94 gallons

Here A represent annual demand

O represent ordering cost

C denotes carrying cost