Question

A producer of Sun-Stop suntan lotion uses 400 gallons per week of a chemical which is ordered in EOQ quantities of 5,000 gallons at a quantity discount cost of Rs. 3.75 per gallon. The procurement lead time is 2 weeks, and a safety stock of 200 gallons is maintained. The storage cost is Rs.0.1 per gallon-week. The average inventory maintained is

• A. 5200 gallon
• B. 2700 gallon
• C. 1000 gallon
• D. 2500 gallon

Answer 1

The correct option is B 2700 gallon

$\text{Maximum inventory:}$

$I_{max}=\text{Safety stock}+EOQ$

$\text{= 200 + 5,000 = 5,200 gallon}$

$\text{Average inventory,}$

$I_{avg}=\frac{I_{max}+I_{min}}{2}=\frac{5200+200}{2}=2700\text{gallon}$