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.
If the hotel orders in lots of 500 gallons, how many orders does it place each year?
What are the ordering and holding costs, and total annual cost?
If the economic ordering quantity is used, how much improvement in cost will result?
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