Question

United Airlines has an agreement to buy jet fuel from Exxon. The goal is to minimize total cost (i.e., ordering cost + holding cost). The annual demand for fuel is 47,000 barrels. Exxon charges United $3200 to process each order. United incurs a holding cost of $21 per barrel. When purchasing using the EOQ (from last question), what is the order cycle time (days between orders) for United? Note: round your answer to the nearest 1 decimal place. For example, answer like 12.3 Answer:

Answer 1

EOQ(Economic Order Quantity) = sqroot{(2*Annual Demand*Ordering cost)/(Holding cost)}

= sqroot{(2*47000*3200)/(21)}

= 3784.68

The number of days between orders = Number of working days/Total Number of orders

Total Number of orders = Annual Demand/EOQ

= 47000/3784.68

= 12.42

The number of days between orders = 365/12.42 (if we consider that the number of working days in the year is 365)

= 29.4 Days