A Hotel Purchases 8,000 Gallons of a Cleaning Product

question 49

Essay

A hotel purchases 8,000 gallons of a cleaning product. Each gallon costs $10, and the cost of holding one gallon for a year is estimated to be $3. Ordering cost amounts to $30 per order.
a.If the hotel orders in lots of 500 gallons, how many orders does it place each year?
b.What are the ordering and holding costs, and total annual cost?
c.If the economic ordering quantity is used, how much improvement in cost will result?

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Definitions:

Economic Integration

Occurs when two or more nations join to form a free-trade zone.

Free-Trade Zone

A specific area within a country where goods may be imported, handled, manufactured, or reconfigured without direct intervention by the customs authorities, often to encourage trade and investment.

Acquired Comparative Advantage

An advantage gained by a country or firm through learning, innovation, and investment, as opposed to natural endowments.

Quota

A government-imposed trade restriction that limits the number or monetary value of goods that can be imported or exported.