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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
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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 $0.03 per month, or $0.36 per year; and annual fuel usage is 180,000 gallons. MBC buses operate 288 days a year.

Required:
a. What is the optimal 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 recorder point?

User William Jia
by
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1 Answer

20 votes
20 votes

Answer:

A. 15,000

B. 12 times

C. No Need Of Expanding the storage tanks

D. 6,250 gallons

Step-by-step explanation:

a. Calculation to determine the optimal quantity for MBC

Using this formula

Optimal quantity=√2×Demand quantity×Ordering cost÷Holding cost

Let plug in the formula

Optimal quantity=√2×180,000×$225÷$0.36

Optimal quantity=√225,000,000

Optimal quantity=15,000

Therefore the optimal quantity for MBC is 15,000

b. Calculation to determine How frequently should MBC order to replenish the gasoline supply

Using this formula

MBC order=Demand quantity÷ Economic Ordering quantity

Let plug in the formula

MBC order=180,000÷15,000

MBC order=12 times

Therefore How frequently should MBC order to replenish the gasoline supply will be 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 OPTIMAL ORDER QUANTITY is 15,000 which is the same with MBC's tank storage capacity.

d. Calculation to determine the reorder point

Using this formula

Reorder point = Lead time× Average demand quantity

Where,

Lead time=10 days

Average Demand Quantity=180,000/$288

Average Demand Quantity=625

Let plug in the formula

Reorder point =10 days*625

Reorder point=6,250 gallons

Therefore Reorder point is 6,250 gallons

User Dion Larson
by
3.2k points
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