Pacific energy Ltd outlet has a throughput of 180 000 liters of Unleaded fuel each week.

Purchases are always made in multiples of 1000 liters. Holding costs including evaporation and variation in volumes due to temperature changes are estimated to be $10 per 1000 liters. Ordering costs are $1 per order.

Required:

a. What is EOQ, calculate on weekly data of Pacific Energy?

b. Given the circumstances above, do you believe Pacific Energy would keep strictly to the EOQ with each order it submits to its suppliers? Why or why not? If you calculated the EOQ on daily turnover data, what values must change to achieve the same EOQ as calculated on a weekly basis?

c. List some management techniques used by financial managers in Pacific Energy to assist in inventory management?

d. What are the assumptions underlying economic order quantity (EOQ) theory? Relate it to Pacific Energy Ltd.

Answer rating: 100% (QA)

a The EOQ on weekly basis formula SqRt2Periodic consumptionordering costholding costs SqRt2180110 Sq... View the full answer