Question
A firm is trying to decide how much of a particular liquid should be ordered. The liquid is kept in a storage tank; there are
A firm is trying to decide how much of a particular liquid should be ordered. The liquid is kept in a storage tank; there are separate inflow and outflow pipes for the tank. The firm uses 500 gallons of liquid per day. When an order is placed with the supplier of the liquid, the truck arrives 7 days later to pump liquid into the tank. Because of the small size of the input pipe, only 2500 gallons per day can be pumped into the tank. The fixed costs of placing an order are 500$ per order. Carrying costs are 20% per year, and each gallon of liquids cost 10$. The firm keeps a safety stock of 1000 gallons of liquid on hand at all times. use a 360 day year. The calculation shows that the EOQ is 9487 gallons and the Order point is 4500 gallons. a. Assume that the maximum capacity of the tank is 10000 gallons. For your ordering strategy, will the tank overflow? Explain why or why not.
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