Question

The assumptions of the production order quantity model are met in a situation where annual demand is 4,000 units, setup cost is $100, holding cost is $20 per unit per year, the daily demand rate is 85 , and the daily production rate is 100. What is the approximate production order quantity for this problem? (Do not round intermediate calculations. Round answer to the nearest whole number.)

A. 568
B. 200
C. 516
D. 75
E. 100

Answer 1

The approximate production order quantity for this problem is 894 units.

Step-by-step explanation:

To calculate the production order quantity, we can use the EOQ formula: EOQ = √((2 * Annual Demand * Setup Cost) / Holding Cost).

Given that the annual demand is 4,000 units, the setup cost is $100, and the holding cost is $20 per unit per year, we can substitute these values into the formula:

EOQ = √((2 * 4000 * 100) / 20) = √(800000) ≈ 894.43

Rounding to the nearest whole number, the approximate production order quantity for this problem is 894 units.