Joe Birra needs to purchase malt for his micro-brew production. His supplier charges $35 per delivery (no matter how much is delivered) and $1.20 per gallon. Joe’s annual holding cost is 35% of the price per gallon. Joe uses 250 gallons of malt per week.
a. Suppose Joe orders 1,000 gallons each time. What is his average inventory?
b. Suppose Joe orders 1,500 gallons each time. How many orders does he place with his supplier each year?
c. How many fallons should Joe order from supplier with each order to minimize the usm of ordering and hlding costs?
d. Suppose Joe orders 2,500 gallons each time he places an order with the supplier. What is the sum of ordering and holding costs per gallon?
e. Suppose Joe orders the quantity from part (c) that minimmizes the sum of the ordering and holding costs each tiime he places an order with the supplier. What is the annual cost of hte EOQ as a percentage of the annual purchase cost?
f. If Joe's supplier only accepts orders that are an integer mulitple of 1,000 gallons, how much should Joe order to minimize ordering and holding costs per gallon?
g. Joe's supplier offers a 3% discount if Joe is willing to purchase 8,000 gallons or more. What would Joe's total annual cost (purchasing, ordering and holding) be if he were to take advantage of the discount?