Calculate the optimal economic order quantity

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Reference no: EM132086019

A car repair shop requires various supplies for routine maintenance of cars. One such supply is windshield washer fluid. The average rate of washer fluid usage throughout the year is constant, with 120 gallons of usage forecasted per month. Fluid costs $2 per gallon, and the holding rate is 40% annually. The fixed ordering cost is $65.

a. Calculate the optimal economic order quantity (EOQ). About how many orders will be placed in a year and how often (in days) will orders be placed?

b. If the holding rate was actually 20% (not 40%), what would be the optimal economic order quantity, the number of orders per year, and the length of time between orders (in days)?

c. Assume that quantity discounts were available as follows: $1.90 per gallon if more than 500 gallons are ordered, $1.80 per gallon if more than 1000 gallons are ordered, and $1.80 per gallon if more than 2000 gallons are ordered. Calculate the optimal order quantity (assume the annual holding rate is 40%).

Reference no: EM132086019

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