Montegut Manufacturing produces a product for which the annual demand is 10,000 units. Production averages 100 units per day, while demand is 40 units per day. Holding costs are $2.00 per unit per year, and setup cost is $200.00
(a) If the firm wishes to produce this product in economic batches, what size batch should be used? (b) What is the maximum inventory level? (c) How many order cycles are there per year? (d) What are the total annual holding and setup costs?
This is a production order quantity problem.
(a) Q*p = = = 1825.7 or 1826 units
(b) The maximum inventory level is Q = 1825.7 = 1095.45 or 1095 units
(c) There are approximately N = = = 5.48 cycles per year
(d) Total annual costs = (5.48 )($200 ) + (1095.45/2 )$2 = $2,190.89 or $2,191
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