12 the purchasing manager for the atlantic steel company must determin
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Question
12. The purchasing manager for the Atlantic Steel
Company must determine a policy for ordering coal to
operate 12 converters. Each converter requires
exactly 5 tons of coal per day to operate, and the firm
operates 360 days per year. The purchasing manager
has determined that the ordering cost is $80 per order
and the cost of holding coal is 20% of the average
dollar value of inventory held. The purchasing
manager has negotiated a contract to obtain the coal
for $12 per ton for the coming year.
a. Determine the optimal quantity of coal to
receive in each order.
b. Determine the total inventory-related costs
associated with the optimal ordering policy (do
not include the cost of the coal).
c. If 5 days of lead time are required to receive an
order of coal, how much coal should be on
hand when an order is placed?