In P, assume that the company desires a safety stock of 500 gallons.
In P, Lopez Chemical Inc. requires 20,000 gallons of material annually; the cost of placing an order is $20; the annual carrying cost per gallon is $5.
Required:
1. Compute the average number of gallons in inventory.
2. Compute the total carrying cost.
3. Compute the total order cost. Did it differ from your answer in P2-3? Why?