Optimal Quantity and Order Frequency for MBC Fuel Purchase

a. What is the optimal quantity for MBC?

b. How frequently should MBC order to replenish the gasoline supply?

c. Should MBC consider expanding the capacity of its storage tanks?

d. What is the reorder point?

A. 15,000

B. 12 times

C. No Need Of Expanding the storage tanks

D. 6,250 gallons

In order to determine the optimal quantity for MBC's fuel purchase, we need to consider the demand quantity, ordering cost, and holding cost. The optimal quantity formula is:

Optimal quantity = √(2 × Demand quantity × Ordering cost ÷ Holding cost)

By plugging in the values, we get:

Optimal quantity = √(2 × 180,000 × $225 ÷ $0.36)

Optimal quantity = √225,000,000

Optimal quantity = 15,000 gallons

Therefore, the optimal quantity for MBC is 15,000 gallons.

For the order frequency, we can use the formula:

MBC order = Demand quantity ÷ Economic Ordering quantity

By substituting the values, we calculate:

MBC order = 180,000 ÷ 15,000

MBC order = 12 times

Thus, MBC should order to replenish the gasoline supply 12 times.

Regarding the storage tanks capacity, since the MBC storage tanks have a capacity of 15,000 gallons, there is no need to expand them as the optimal order quantity aligns with the tank's capacity.

Lastly, to find the reorder point, we can use the formula:

Reorder point = Lead time × Average demand quantity

By calculating:

Reorder point = 10 days × (180,000 / 288)

Reorder point = 10 days × 625

Reorder point = 6,250 gallons

Therefore, the reorder point for MBC is 6,250 gallons.