Question

One large bakery still receives flour in 25-pound bags from their own company's warehouse. They use an average of 5500 bags a year. The production step that uses these bags use 35 bags per day while the usage is 16 bags per day. It costs $12.00 to configure the machines for each run. Annual carrying costs are $7.50 per bag. What will be their average number of bags on hand if they request the EPQ bags in each order

Answer 1

48.87 bags

Step-by-step explanation:

First, we need to calculate the EPQ as follow

EPQ =
`\sqrt{(2 D S )/(H(1-d/p))}`

Where

D = Annual Demand = 5500

S = Setup cost = $12

H = Carrying cost = $7.5

d = Daily usage = 16

p = Daily production = 35

Placing value sinthe formula

EPQ =
`\sqrt{(2 X 5500 X 12 )/(7.5(1-16/35))}`

EPQ =
`\sqrt{(132000 )/(4.07142857)}`

EPQ =
`√(32421.05)`

EPQ = 180.06

Now Calculate the average number of bags in hand as follow

Average Number of Bags =
`(EPQ)/(2) X ( 1 - d/p )\\`

Placing values in the formula

Average Number of Bags =
`(180.06)/(2) X ( 1 - 16/35 )\\`

Average Number of Bags = 48.87