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 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

Answer 1

1,683 units

Step-by-step explanation:

Given that,

Annual demand, D = 85,000

Price of fuel, P = $2 per gallon

Ordering fee, O = $50 per order

Lead time, L = 5 days

Holding cost per unit, H = 15%

= 0.15 × $2 per gallon

= $0.3

Economic order quantity (EOQ):

=
`\sqrt{(2* Ordering\ cost* Demand)/(Holding\ cost) }`

=
`\sqrt{(2* 50* 85,000)/(0.3)}`

=
`\sqrt{(8,500,000)/(0.3) }`

= √28,333,333.3

= 1,683.2 or 1,683 units