Economic Order Quantity
An energy company orders metric tons of liquid natural gas that is used at the rate of 1,000,000 metric tons per year. Delivery lead time has averaged 8 days. The annual cost to hold inventory is $50 per metric ton and each order that is placed with the supplier costs $2,500 per metric ton. The plant manager has set a safety stock level of 50,000 metric tons.
a- What is the economic order quantity (in metric tons)?
b- What is the total holding cost for the year?
c- What is the total ordering cost for the year?
d- The next order should be placed when liquid natural gas inventory drops to how many metric tons? (Assume 365 days in one year for converting annual demand to daily demand)
