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Question - An earthwork project needs a steady supply of fuel 1,500 liters per day. The price of fuel is RM2.50 per liter. The fuel suppliers usually keep sufficient supply of fuel in his storage to meet customer demand and the cost of storage is 5% per week of their cost price.
The cost to the supplier each time a new order is processed is RM35. However, sometimes the delivery date cannot be met so to make up the backlogs there are special deliveries to the customer as soon as the supplier is able to continue with the order. The extra cost incurred by the supplier in this situation is RM10 per 1000 liters.
Required -
1. Calculate the economic order quantity for the supplier.
2. Calculate the total cost per week to the supplier of stockholding and processing orders.
3. Calculate the level to which the stock on site is topped up.
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