QUESTION OF OPERATION RESEARCH- INVENTORY

 QUESTION 1

(i) Discuss the difference between perpetual and periodic inventory systems.

(ii) Explain the difference between ‘reorder point’ and ‘safety stock’. How are these two concepts

related?

QUESTION 2

An oil refinery buys crude oil on a long-term supply contract for $40 per barrel. When shipments 

of crude oil are made to the refinery, they arrive at the rate of 10,000 barrels per day. The refinery 

uses the oil at a rate of 5,000 barrels per day and plans to purchase 500,000 barrels of crude oil 

next year. The carrying cost is 25 percent of acquisition cost per unit per year and the ordering 

cost is $8,000 per order.

Required:

i. How many barrels will be in the store (maximum level of inventory)?

ii. Determine the optimal total stocking cost (TSC) for the refinery?

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