Optimizing Diesel Fuel Orders for Metropolitan Bus Company
What is the optimal order quantity for Metropolitan Bus Company?
a. 12500
How frequently should Metropolitan Bus Company order to replenish the gasoline supply?
Should Metropolitan Bus Company consider expanding the capacity of its storage tanks?
What is the reorder point?
Answer:
The optimal order quantity for Metropolitan Bus Company is 12500 gallons.
Metropolitan Bus Company should order 12500 gallons of diesel fuel to optimize its inventory management and minimize costs. This quantity, known as Economic Order Quantity (EOQ), is calculated using the formula: EOQ = sqrt(2 * D * S / H), where D is the annual fuel usage (150,000 gallons), S is the ordering cost ($250), and H is the holding cost ($0.48 per year per gallon).
By ordering 12500 gallons at a time, Metropolitan Bus Company can strike a balance between minimizing the costs of ordering and holding inventory. This optimal order quantity ensures that MBC maintains enough fuel to operate efficiently while avoiding excessive storage costs.