Question

A product has annual demand of 10,000 units. The plant manager wants production to follow a four-hour cycle. Based on the following data, what holding cost per unit per year will enable the desired production cycle? d = 40 per day (250 days per year), p = 200 units per day, S = $7.20 per order, and Q = 20 (demand for four hours, half a day). $18.00 $40.00 $400.00 $45.00 $450.00

Answer 1

Based on the data, the holding cost per unit per year that will enable the desired production cycle is:

= $18.00.

Step-by-step explanation:

a) Data and Calculations:

Annual demand of the product = 10,000 units

Demand per day, d = 40 (10,000/250) units

Given days in a year = 250 days

Production, p per day = 200 units

Ordering cost, S = $7.20 per order

Q (demand for four hours or half a day) = 20 units (40/2) following a four-hour cycle

Number of orders = 10,000/20 = 500

Total ordering costs = $3,600 (500 * $7.20)

Since EOQ = Q = 20 units

20 = Square root of (2*D*S)/H

Where:

D = Annual demand

S= Ordering cost

H = Holding cost

20 = Square root of (2 * 10,000 * $3,600)/H *10,000

20 = Square root of 72,000,000/(H * 10,000)

Substituting H with $18

= Square root of 72,000,000/180,000

= Square root of 400

= 20