Hooper Corporation Hooper Corporation operates its factory 300 days per year.Its annual consumption of Material Y is 1,200,000 gallons.It carries a 10,000 gallon safety stock of Material Y and its lead time is 12 business days.
Refer to Hooper Corporation.If the EOQ for Material Y is 30,000 gallons,and the carrying cost per gallon per year is $.25,what is the total annual carrying cost for Material Y?

Question

Quizplus · Accepted Answer

First, we need to calculate the annual demand for Material Y:
Annual Demand = Daily demand x Days of operation
Annual Demand = (1,200,000 / 300) x 300 = 1,200,000 gallons

Next, we need to calculate the number of orders per year:
Number of orders = Annual demand / EOQ
Number of orders = 1,200,000 / 30,000 = 40

Then, we can calculate the time between orders:
Time between orders = Days per year / Number of orders
Time between orders = 300 / 40 = 7.5 days

We know the lead time for Material Y is 12 business days, so we need to adjust our calculation for the time between orders accordingly:
Time between orders = Lead time + Safety stock
7.5 days = 12 days + Safety stock
Safety stock = -4.5 days

Since we can't have a negative safety stock, we need to adjust the time between orders again:
Time between orders = Lead time + Safety stock
Time between orders = 12 days + 0 days (we can't have a negative safety stock)
Time between orders = 12 days

Now we can calculate the average inventory:
Average inventory = EOQ / 2 + Safety stock
Average inventory = 30,000 / 2 + 10,000 = 25,000 gallons

Finally, we can calculate the carrying cost:
Carrying cost = Average inventory x Carrying cost per gallon per year
Carrying cost = 25,000 x $0.25 = $6,250

Therefore, the total annual carrying cost for Material Y is $6,250. The best choice is (C).

Hooper Corporation Hooper Corporation Operates Its Factory 300 Days Per