1. Suppose you own a gas station. The daily demand for gasoline is 1,750 gallons per day. You purchase gasoline from your supplier @ $2.50 per gallon. Assume 360 days a year. Inventory carrying cost per month is 2% of the cost of gasoline and ordering/replenishment cost per order is $300.You follow the fixed order quantity or a continuous review policy. Calculate the following:

a.Optimal order size in gallons. (5)

b. Average inventory (3)

c.The number of orders per year (2)

d. Annual replenishment, inventory carrying cost, and the total cost. (5)

e. Reorder points if the lead time is 5 days. (2)

F. Your supplier has a policy of delivering gasoline in multiple of 10,000 gallons. In view of the policy, you decide your order quantity to be 30,000 gallons.

(i)What would be your annual cost of replenishment and inventory holding? (10)

(ii)What penalty would you be paying for not following your optimal policy? (3)