Ardmore Farm and Seed has an inventory dilemma. They have been selling a brand of very popular insect spray for the past year. They have never really analyzed the costs incurred from ordering and holding the inventory and currently fave a large stock of the insecticide in the warehouse. They estimate that it costs $25 to place an order, and it costs $0.25 per gallon to hold the spray. The annual requirements total 80,000 gallons for a 365 day year.
a. Assuming that 10,000 gallons are ordered each time an order is placed, estimate the annual inventory costs.
b. Calculate the EOQ.
c. Given the EOQ calculated in part b., how many orders should be placed and what is the average inventory balance?
d. If it takes seven days to receive an order from suppliers, at what inventory level should Ardmore place another order?