Question

Consider a firm with a daily demand of 100​ units, a production rate per day of 500​ units, a setup cost of​ $200, and an annual holding cost per unit of​ $10. Suppose that the firm operates 300 days per year. How many units of inventory must their storage area be able to​ hold?

Answer 1

Their storage area should be able to hold at least 1,095 So it can storage their EOQ

Step-by-step explanation:

We will calcualte economic order quantity. This will tell us the order quantity which reduced the inventory cost. And this order size would need to be the minimun size of the storage area.

`Q_(opt) = \sqrt{(2DS)/(H)}`

D = annual demand = 100 per day x 300 = 30,000

setup cost = ordering cost = 200

H = holding cost = 10

`Q_(opt) = \sqrt{(2*30,000*200)/(10)}`

EOQ = 1095.445115 = 1,095

Their storage area should be able to hold at least 1,095 So it can storage their EOQ

How to Remember:

Demand per year and order cost goes in the dividend.

Holding cost goes in the divisor.