EOQ analysis Thompson Paint Company uses 60 000 gallons of pigment per year. The cost of ordering

QUESTION

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.)
Solution: Given: Ordering cost (K) = $200 per order Carrying cost (h)= $1 per gallon Total demand (D) = 60,000 gallons Part(a) EOQ = Economic Order Quantity So, EOQ = (2*60,000*200 / 1)^0.5 =

98.98 gallons per order Part(b) Reorder level = Average daily usage rate x Lead time in days = (60,000/365)*20 = 3,287.67 gallons.

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