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The Purchasing manager of the Atlantic Steel Company must determine a policy for ordering coal to operate 12 converters. Each converter requires exactly 5 tons of coal per day to operate, and the firm operates 360 days per year. The purchasing manager has determined the ordering cost is $ 80 per order, and the cost of holding coal in stock is 20 percent of the average dollar value of inventory held. The purchasing manager has negotiated a contract to obtain the coal for $ 12 per ton for the coming year. a. Determine the optimal order quantity of coal to receive in each order b. Determine the total inventory related costs associated with the optimal ordering policy (do not include the cost of the coal). c. If 5 days’ lead time is required to receive an order of coal, how much should be on hand when an order is placed d. If the firm is offered 5% price discount on order of 1000 units and above, would you advise the firm to accept the order? Please explain your reasons for accepting or rejecting the offer.

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M92554332

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