## Expert Answer

Here following information is known :

Cost of Malt per gallon = USD 1.2

Inventory holding cost = 35% of the dollar value of the unit = 1.2 X 35 /100 = 0.42 USD per gallon

Weekly Requirement of Malt = 5000 gallons

Total number of weeks in a year = 52 weeks

Annual requirement of Malt = 5000 X 52 = 260000 gallons

Order cost in the question is not given we are assuming 35 USD given in the question as delivery charge as Ordering cost.

So ordering cost = 35 USD

Now economic order quantity is given by the formula

EOQ = Square root of (2 X Annual Quantity X Cost per order) / (Inventory Holding Cost per unit per annum)

= Square root of ( 2 X 260000 X 35)/( 0.42) = 6582.8 gallons = 6583 gallons

In the question it is given that the supplier is not accepting orders if it is not in 1000 gallons . So based upon this we are rounding off the order quantity from 6583 gallons to 7000 gallons.

Total number of orders to be placed in the year = 260000 / 7000 = 37.14 = 37 orders

Cycle length = Total number of weeks / Total number of orders = 52 / 37 = 1.4 week

So ordering should be every 1.4 week and assuming production is running 7 days a week order should be placed on every 10th day.

If the lead time from supplier is 2 weeks then re order level will be = Weekly requirement in Gallons X 2

= 5000 X 2 = 10000 gallons

If we assume that in the begining of the year Stock is 0 our first order should be = 7000 + 10000 = 17000 gallons

After this 1st order for 17000 gallons all subsequent orders should be placed for 7000 gallons.