Inventory Management Essay

The Peace Care Hospital uses about 3,500 boxes of sterile bandages per month. The annual carrying cost rate is $2.90 per box per year. A typical box of sterile bandages costs $14.50 to purchase. The ordering cost is $25 each time an order is placed, regardless of the order quantity. There is storage space for at most 1,500 boxes of bandages at any time. The hospital operates 365 days per year. Peace Care Hospital would like to use the EOQ model.

Terengganu Oil Refining buys crude oil on a long-term supply contract for RM38 per barrel. When shipments of crude oil are made to the refinery, they arrive at the rate of 12,000 barrels per day. Terengganu Oil uses the oil at a rate of 5,000 barrels per day and plans to purchase 600,000 barrels of crude oil next year. If the carrying cost is 30 percent of acquisition cost per unit per year and the ordering cost is RM11,600 per order:

A fuel distributor near the Toledo airport is the sole vendor of jet fuel at the airport. Annual demand for jet fuel is 5,202,000 gallons, and daily demand averages 17,000 gallons.

The distributor operates 306 days per year. The distributor orders jet fuel from a refinery that is several hundred miles away. The refinery will deliver fuel to the distributor at the rate of 44,000 gallons per day, although a smaller quantity can be delivered to complete an order. The distributor’s ordering cost is RM1,500 per order, and the annual carrying cost rate is 30 percent of the acquisition cost. The refinery has the following pricing structure:

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