Question

A toy manufacturer uses 49,560 rubber wheels per year for its popular dump truck series. The firm makes its own wheels, which it can produce at a rate of 700 per day. The toy trucks are assembled uniformly over the entire year. The unit cost is $17.00 per week with Carrying cost of 10% per year. Setup cost for a production run is $400. The firm operates 236 days per year. Determine the optimal production order quantity.

a) 4772
b) 1800
c) 2500
d) 5772

Answer 1

The optimal production order quantity is 4772.

Step-by-step explanation:

To determine the optimal production order quantity, we can use the Economic Order Quantity (EOQ) formula. EOQ = √((2 * D * S) / H), where D is the annual demand, S is the setup cost, and H is the carrying cost. In this case, D = 49,560, S = $400, and H = 10% of unit cost per year. The unit cost per week is $17, so the annual unit cost is 17 * 52 = $884. Plugging these values into the formula, we get EOQ = √((2 * 49,560 * 400) / (0.1 * 884)) = 4772. Therefore, the optimal production order quantity is 4772, option a).