Question

A manufacturer makes product A. The annual demand for product A at the manufacturer is

12,000 units and it has the capability of producing 100 units daily. Setting up the production costs $50.
The unit cost of product A is $1. The annual holding cost is 10% of the unit cost. Find the following:
a. Optimal production batch size
b. Annual holding cost
c. Annual setup cost
d. Total annual cost
e. Production run time for production batch size obtained in (a)
f. down time for production batch size obtained in (a)

Answer 1

To find the optimal production batch size, calculate the Economic Order Quantity (EOQ) using the formula. The optimal production batch size is approximately 346 units.

Step-by-step explanation:

To find the optimal production batch size, we need to determine the Economic Order Quantity (EOQ) which minimizes the total annual cost. The EOQ formula is:

EOQ = \sqrt{\frac{{2DS}}{{H}}}

Where D is the annual demand, S is the setup cost, and H is the holding cost per unit. Plugging in the values:

EOQ = \sqrt{\frac{{2 \cdot 12000 \cdot 50}}{{0.1 \cdot 1}}}

EOQ \approx 346.41

The optimal production batch size is 346 units.