Case Study: The Greenmore Lawn Products Company

The Greenmore Lawn Products Company produces lawn fertilizer. One raw material—ammonium nitrate—is purchased in large quantities for making fertilizer.

Scenario:
- 2,500,000 tons of ammonium nitrate are forecast to be required next year to support production.
- Ammonium nitrate costs $122.50 per ton.
- Carrying cost is 35% of the acquisition cost.
- Ordering cost is $1,595 per order.

Questions:

Question 21: In what quantities should Greenmore buy ammonium nitrate?
A. 15,235.25 tons per order
B. 13,638.395 tons per order
C. 13,638.395 tons per order
D. 15,235 tons per order

Question 22: What annual stocking costs will be incurred if ammonium nitrate is ordered at the EOQ?
A. $584,746.20
B. $584,746.90
C. $594,746.20
D. $684,746.20

Question 23: How many orders per year must Greenmore place for ammonium nitrate?
A. 193.3 orders per year
B. 183.3 orders per year
C. 188.3 orders per year
D. 283.3 orders per year

Question 24: How much time will elapse between orders?
A. About 4 days
B. About 3 days
C. About 5 days
D. About 2 days

Question 25: What is the basic assumption in the case?
A. Demand is constant
B. No quantity discount available
C. Both A & B
D. None of the above

According to the question Q21: Correct answer: b) 13,638.395 tons per order. Q22: Correct answer: a) $584,746.20. Q23: Correct answer: a) 193.3 orders per year. Q24: Correct answer: c) about 5 days. Q25: Correct answer: c) Both A & B (Demand is constant and no quantity discount available).

In order to determine the quantities of ammonium nitrate that Greenmore should purchase, various factors need to be considered. By using the Economic Order Quantity (EOQ) model, Greenmore can calculate the optimal order quantity.

In this case, the EOQ is approximately 13,638.395 tons per order. By ordering at this quantity, Greenmore can minimize its stocking costs. The annual stocking costs incurred at the EOQ would be around $584,746.20.

To maintain the inventory levels, Greenmore would need to place approximately 193.3 orders per year, with an average time of about 5 days between orders. The basic assumptions in this case are that demand is constant and there are no quantity discounts available.

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