Economic Order Quantity
An energy company orders metric tons of liquid natural gas that is used at the rate of 1,000,000 metric tons per year. Delivery lead time has averaged 8 days. The annual cost to hold inventory is $50 per metric ton and each order that is placed with the supplier costs $2,500 per metric ton. The plant order has set a safety stock level of 50,000 metric tons.
a. What is the economic order quantity (in metric tons)?
b. What is the total holding cost for the year?
c. What is the total ordering cost for the year?
d. The next order should be placed when liquid natural gas inventory drops to how many metric tons? (assume 365 days in one year for converting annual demand to daily demand)