Reference no: EM131105034
The Blue Cab Company is the primary taxi company in the city of Maintown. It uses gasoline at the rate of 8,500 gallons per month. 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 $1.05 per gallon every few months. The cost of arranging for each order, including placing the gasoline into storage, is $1,000. The cost of holding the gasoline in storage is estimated to be $0.01 per gallon per month.
(a) Use the Solver version of the Excel template for the basic EOQ model to determine the costs that would be incurred annually if the gasoline were to be ordered monthly.
(b) Use this same spreadsheet to generate a table that shows how these costs would change if the number of months between orders were to be changed to the following values: 1, 2, 3, . . . , 10.
(c) Use the Solver to find the optimal order quantity.
(d) Now use the analytical version of the Excel template for the basic EOQ model to find the optimal order quantity. Compare the results (including the various costs) with those obtained in part (c).
(e) Verify your answer for the optimal order quantity obtained in part (d) by applying the EOQ formula by hand.
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