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The metropolitan Bus Company (MBC) purchases diesel fuel from Canadian Petroleum Supply (CPS). In addition to the fuel cost, CPS charges MBC $250 per order to cover the expenses of delivering and transferring the fuel to MBC’s storage tanks. The lead time for a new shipment from CPS is 10 days; the cost of holding a gallon of fuel in the storage tanks is $0.04 per month, or $0.48 per year; and annual fuel usage is 15,000 gallons. MBC buses operate 300 days a year.

a) What is the optimal order quantity for MBC?

b) How frequently should MBC order to replenish the gasoline supply?

c) The MBC storage tanks have a capacity of 15,000 gallons. Should MBC consider expanding the capacity of storage tanks?

d) What is the reorder point?

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M92586129

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