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Suggested_Solutions_to_In-class_EOQ_Exercises

# Suggested_Solutions_to_In-class_EOQ_Exercises - In-class...

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In-class Exercises 1. A taxi company uses diesel fuel at a constant rate of 8,500 litres per month. The company purchases and stores huge quantities of diesel fuel every few months at a cost of \$3.60 per litre. A surcharge of \$3,000 is added to every order for the transportation and delivery of the fuel. The inventory holding cost is charged at 1% of the purchase cost per month. a. If no shortages are allowed, how often and how much should the company order? How long would each order last? b. If the purchase cost of diesel is reduced to \$3.45 for an order of more than 20,000 litres, and \$3.30 for an order of more than 40,000 litres, how much should the company order, and why? c. If the delivery lead time is 1 week and assumed constant, what should be the reorder point? Solutions: a. C h = 0.01(3.60) = 0.036/litre/month (= \$0.432/litre/year) D = 8500 litres/month (= 102,000 litres per year) C o = \$3,000 = 37,640 litres 71 . 2 37640 102000 * * = = = Q D N times per year 43 . 4 8500 37640 1 * * = = = N T months The company should order 37,640 litres of diesel 2.71 times a year. Each order is equivalent to a 4.43 months’ supply of fuel. b. If C = \$3.45, C h = 0.01(3.45) = 0.0345/litre/month

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Suggested_Solutions_to_In-class_EOQ_Exercises - In-class...

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