Question

The Blue Company is the primary taxi company in the city of Maintown. It uses gasoline at the rate of 106,800 gallons per year. Because this is such a major cost, the company has made a special arrangement with the Amicable Petroleum Company to purchase a huge quantity of gasoline at a reduced price of $2.00 per gallon. The cost of arranging for each order, including placing the gasoline into storage, is $2,000. The cost of holding the gasoline in storage is estimated to be $0.24 per gallon per year.

Required:
a. Using MS Excel Solver, determine the optimal order quantity.

Answer 1

462.169 gallons

Step-by-step explanation:

Given that:

the annual demand of gasoline = 106800 gallons per year

Price = $2.00 per gallon

Order cost = $2,000

Holding cost = $0.24 per gallon per year

The objective here is to use Ms Excel solver to determine the optimal order quantity.

We will be attaching four diagrams showing the step-wise process for the determination of the optimal order quantity.

Firstly; we create a model for the given data

Then we ; use the excel formula which the description are shown in the second diagram attached

Finally;we use the solver parameter to obtain the optimal order quantity.

The optimal order quantity = 462.169 gallons

See the attachment below for better understanding.