EOQ analysis
Thompson Paint Company uses 60,000 gallons of pigment per year. The cost of ordering pigment is $200 per order, and the cost of carrying the pigment in inventory is $1 per gallon per year. The firm uses pigment at a constant rate every day throughout the year.
- a. Calculate the EOQ.
- b. Assuming that it takes 20 days to receive an order once it has been placed, determine the reorder point in terms of gallons of pigment. (Note: Use a 365-day year.)
a.
To determine: The Economic order quantity (EOQ).
Answer to Problem 15.2STP
Explanation of Solution
Given information:
Annual usage: 60,000 gallons
Ordering cost: $200 per gallon
Carrying cost:$1.00 per gallon
Calculation of the EOQ:
Therefore, the EOQ is 4,899 gallon..
b.
To determine: The reorder point in terms of gallons of pigment, if it take 20 day to r3ecive pigment per year.
Answer to Problem 15.2STP
Explanation of Solution
Lead time: 20 days.
Calculation of the daily usage:
Calculation of the reorder point:
Therefore, the reorder point is 3,287.6gallons.
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Chapter 15 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
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- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT