A hotel purchases 18,000 gallons of a cleaning product per year. Each gallon costs $10 and the cost of holding one gallon for a day is estimated to be $0.50. Ordering cost amounts to $30 per order.
a) If the hotel orders in lots of 500 gallons, how many orders does it place each year?
18,000/500 = 36 orders per year
b) What are the ordering and holding costs, and total annual cost?
Ordering costs = 36 orders * $30 per order = $1080.00
Holding costs = Price of product per year = 18,000 * $10.00 = $18000.00
Total annual costs = $18000.00 + $1080.00 + ??????
c) If the economic ordering quantity is used, how much improvement in cost will result?
(I think I have parts of the answer, but need help with the rest. Must show work).