Question

Farmer joe buys fuel for his farm from the local co-op. He uses 1,000 gallons a month. The co-op charges him $100.00 per order when he orders and it costs him $1.50 per gallon per year to store the gas at his farm. The co-op can arrive within an hour of his order and Joe only has a soo gallon tank he can fill. How much fuel should joe order every time he places an order? Excel Access

Answer 1

Answer is: 500

Here,

Monthly demand = 1000 gallons

Annual Demand (D) = 12000 gallons

Ordering Cost (S) = $100

Holding Cost (H) = $1.5 per gallon per year

EOQ = √(2*D*S/H)

= √(2*12000*100/1.5)

= 1264.911

= 1265

But we have a capacity to store 500 gallons

Hence order quantity should be 500 gallons

*** If he has unlimited count of 500 gallons tanks, then the order size (answer) will be 1500 gallons)

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