A chemical plant orders barrels of argon that is used at the rate of 800 barrels per year. Each order that is placed with the supplier costs $20 to process and the annual cost to hold inventory is $125 per barrel. Delivery lead time of the barrels has averaged 13 days, but since this lead time can vary the plant manager has set a safety stock level of 82 barrels.
a. What is the economic order quantity?
b. What is the total holding cost for the year?
c. What is the total ordering cost for the year?
d. How many orders will be placed each year? You can leave this answer as a decimal.
e. The next order should be placed when argon inventory drops to what amount? (assume 365 days in one year for converting annual demand to daily demand. You can leave this as a decimal.)