O’Brien Shipping (OBS) operates a single ship that is used solely to transport corn from Valparaiso to the island nation of Kiribati. The corn is used to replenish the central stores of the Government of Kiribati (GOK) using an EOQ and ROP inventory scheme. Corn costs $5 per bushel, and GOK estimates that the annual cost of holding corn in inventory are 20% of the cost of corn. Demand for corn from the central stores equals 60,000 bushels per month. (a) Currently OBS charges GOK $10,000 per shipment regardless of the size of the shipment. Each “round trip”to and from Kiribati lasts one month in total.
1. What is the Economic Order Quantity for the GOK? (nearest whole number)
2. What is the utilization of OBS’s ship? That is, for what fraction of the year is it on the high seas? (Nearest whole number percent)