Question

Problem 2.7 Service Station A service station uses 1,200 cases of oil a year. Ordering costs is $40 and annual carrying cost is $3 per case. The station owner has specified an annual service level of 99 percent. a. What is the optimal order quantity? EOQ = This is the lot size.

Answer 1

179 units

Step-by-step explanation:

The computation of the economic order quantity is shown below:

`= \sqrt{\frac{2* \text{Annual demand}* \text{Ordering cost}}{\text{Carrying cost}}}`

where,

Annual demand = 1,200 cases

Ordering cost = $40

And, the annual carrying cost is $3 per case

Now placing these values to the above formula

So, the optimal order quantity is

`= \sqrt{\frac{2* \text{1,200}* \text{\$40}}{\text{\$3}}}`

= 179 units

Hence, the optimal order quantity is 179 units