A bus company purchases fuel from American Petroleum Supply. In addition to the fuel cost, American Petroleum Supply charges the company 250 per order to cover transportational expenses.
The lead time for a new shipment from American Petroleum is 10 days, the cost of holding a gallon of fuel in the storage tanks is 0.04 dollars per month, or 0.48 dollars a year, and annual fuel usage is 150000 gallons. The company operates 300 days a year.
a. What is the optimal order quantity
b. How frequently should the company order to replenish gas supply
c. The company storage tanks have a capacity of 15,000 gallons. should the company consider expanding the capacity?
d. What is the reorder point?