The General Chemical Company uses 150,000 gallons of hydro chloric acid per month. The cost of carrying the chemical in inventory is 50 cents per gallon per year, and the cost of ordering the chemical is $150 per order. The firm uses the chemical at a constant rate throughout the year. The chemical's economic order quantity is ________.
A) 32,863 gallons
B) 11,619 gallons
C) 9,487 gallons
D) 1,900 gallons

Question

Quizplus · Accepted Answer

The economic order quantity (EOQ) is the optimal quantity of inventory to order at a time to minimize the total inventory costs. The EOQ is given by the following formula:EOQ = √(2*D*O)/Hwhere:D = annual demandO = ordering costH = carrying cost per unit per yearIn this case, the annual demand is 150,000 gallons, the ordering cost is $150, and the carrying cost is 50 cents per gallon per year. Plugging these values into the formula, we get:EOQ = √(2*150,000*$150)/$0.50 = 32,863 gallonsTherefore, the economic order quantity is 32,863 gallons.

The General Chemical Company Uses 150,000 Gallons of Hydro Chloric