Example 14.4 A chemical company is trying to find the optimal batch size for the reorder of concentrated sulphuric acid. The management accountant has supplied the following information: The purchase price of H SO, is Rs 150 per gallon. (m) The clerical and data processing costs are Rs 500 per order. All the goods are transported by rail. Each time the special line to the factory is opened the company is charged Rs 2,000. A charge of Rs 20 gallon is also made. The company uses 40,000 gallons per year. Maintenance costs of stock are Rs 400 per gallon per year. Each gallon requires 0.5 sq ft of storage space. If warehouse space is not used, it can be rented out to another company at Rs 200 per sq ft per annum. The available warehouse space is 1,000 sq ft, the overhead costs being Rs 5,000 per annum. Assume that all free warehouse space can be rented out. (a) Calculate the economic reorder size. (b) Calculate the minimum total annual cost of holding and reordering stock