Three liquid fuels are stored in tanks for use in a blending process. Each fuel is characterized by a demand rate, a fixed replenishment cost, and a unit cost. Inventory carrying costs are assessed at the rate of 12 percent per year. In order to save money on insurance rates, the operating policy is to limit the average value of stock on hand to no more than $7,500.

Fuel	Demand	Fixed Cost	Unit Cost
1	1,000/year	$100	$150
2	250/year	$175	$100
3	500/year	$150	$120

a) What is the optimal order quantity of Fuel 1?

HINT: The average number of units of each fuel on hand is the order quantity divided by 2.

b) What is the optimal order quantity of Fuel 2?

HINT: The average number of units of each fuel on hand is the order quantity divided by 2.

c) What is the time-averaged annual cost for the three fuels combined?

HINT: The average number of units of each fuel on hand is the order quantity divided by 2.