Question

Vetox sells industrial chemicals. One of their inputs can be purchased in either jugs or barrels. A jug contains one gallon, while a barrel contains 55 gallons. The price per gallon is the same with either container. Vetox is charged a fixed amount per order whether it purchases jugs or barrels. The inventory holding cost per gallon per month is the same with either jugs or barrels. Vetox chooses an order quantity to minimize ordering and holding costs per year. Would Vetox purchase a greater number of gallons with each order if it purchased with jugs or with barrels?

A. They would order a greater number of gallons with barrels.
B. They would order the same number of gallons with either container.
C. They would order a greater number of gallons with jugs.
D. They might order a greater number of gallons with jugs or with barrels, depending on various factors like the demand rate, ordering cost, and holding cost.

Answer 1

D. They might order a greater number of gallons with jugs or with barrels, depending on various factors like the demand rate, ordering cost, and holding cost.

Step-by-step explanation:

Let us assume the following things

D be the demand rate

P be the Unit cost

H be the holding cost per gallon per months

S be the ordering cost

Now the economic order quantity is

EOQ units = Q = √(2DS ÷ (H))

Therefore, the order quantity would be based upon demand rate, ordering cost and holding cost.

So the last option is correct