Metropolitan Bus Company purchases diesel fuel from American Petroleum Supply. American Petroleum Supply charges $250.00 to cover delivery expenses. The lead time for a new shipment from American Petroleum is 10 days and the cost of holding a gallon of fuel in storage is $0.04 per month or $0.48 per year and annual fuel usage is 150,000 gallons. MBC operates 300 days a year. What is the optimal order quantity for MBC? How frequently should MBC order to replenish the gasoline supply? The MBC storage tanks have a capacity of 150,00 gallons. Should MBC consider expanding the capacity of its storage tanks? What is the reorder point?

EOQ= sqrt (2*150000*250)/.48

EOQ= 12500

Metropolitan Bus Company purchases diesel fuel from American Petroleum Supply. American Petroleum Supply charges $250.00 to cover delivery expenses. The lead time for a new shipment from American Petroleum is 10 days and the cost of holding a gallon of fuel in storage is $0.04 per month or $0.48 per year and annual fuel usage is 150,000 gallons. MBC operates 300 days a year. What is the optimal order quantity for MBC?

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To determine the optimal order quantity for the Metropolitan Bus Company (MBC), we can use the Economic Order Quantity (EOQ) model. The EOQ model balances the cost of ordering and holding inventory to find the most cost-effective order quantity.

1. Calculate the EOQ:
EOQ = √[(2 * Annual Demand * Ordering Cost) / Holding Cost per Unit]
Where:
Annual Demand = 150,000 gallons (given)
Ordering Cost = $250.00 (given)
Holding Cost per Unit = $0.48 per year (given)

EOQ = √[(2 * 150,000 * $250.00) / $0.48]
EOQ = √[(300,000 * $250.00) / $0.48]
EOQ = √[(75,000,000) / $0.48]
EOQ ≈ 645,497 gallons

Therefore, the optimal order quantity for MBC is approximately 645,497 gallons.

2. To determine the frequency of orders, we can use the formula:
Order Frequency = (Annual Demand / EOQ)
Order Frequency = (150,000 / 645,497)
Order Frequency ≈ 0.2324

Therefore, MBC should order fuel approximately 0.2324 times per year, which means they should order every 1 / 0.2324 ≈ 4.3081 units of time (approximately every 4.31 units of time).

3. Since MBC's storage tanks have a capacity of 150,000 gallons and the optimal order quantity is approximately 645,497 gallons, MBC would need to consider expanding their storage tank capacity to accommodate the larger order quantity. Otherwise, they would require multiple deliveries or partial deliveries each time they order, which could increase delivery costs and logistics complexity.

4. The reorder point is the inventory level at which MBC needs to place a new replenishment order to avoid running out of fuel. The reorder point can be calculated using the formula:
Reorder Point = Lead Time Demand
Where:
Lead Time = 10 days (given)
Lead Time Demand = (Average Daily Demand * Lead Time)
Average Daily Demand = Annual Demand / Number of Working Days per Year

Lead Time Demand = ((150,000 gallons / 300 days) * 10)
Lead Time Demand = (500 gallons/day * 10)
Lead Time Demand = 5,000 gallons

Therefore, the reorder point for MBC is approximately 5,000 gallons. This means MBC should place a new order when the fuel inventory level reaches around 5,000 gallons to ensure they don't run out before the new shipment arrives.