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The Metropolitan Bus Company (MBC) purchases diesel fuel from American Petroleum Supply. In addition to the fuel cost, American Petroleum Supply charges MBC $300 per order to cover the expenses of delivering and transferring the fuel to MBC's storage tanks. The lead time for a new shipment from American Petroleum is 10 days; the cost of holding a gallon of fuel in the storage tanks is $0.06 per month, or $0.72 per year; and annual fuel usage is 120,000 gallons. MBC buses operate 300 days a year.
a. What is the optimal order quantity for MBC?
b. How frequently should MBC order to replenish the gasoline supply? What are the orders per year?
c. he MBC storage tanks have a capacity of 15,000 gallons. Should MBC consider expending the capacity of its storage tanks? Metropolitan Bus Company__________ the capacity of its storage tanks. (Expand or not Expand?)
d. What is the reorder point? R=__________gallons
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