Question

XYZ Ltd produces a product for which the annual demand is 10,000 units. Production averages 100 units per day, while demand is 40 units per day. Holding costs are $2.00 per unit per year, and setup cost is $200.00. If the firm wishes to produce this product in economic batches, what size batch should be used?

Answer 1

Answer: Batch size to be used =Economic batch size of 2,236 units

Step-by-step explanation:

From the question, we have that

Annual demand (D) = 10,000 units

Setup cost (S) = $200

Holding cost (H) = $2 per unit per year

Daily production (p) = 100 units per day

Daily Demand (d) = 40 units per day

Therefore Economic batch size, Q will be calculated as

Q =
`√(2 x D x S / H x ( 1-d/p )`

Q=
`√(2 x 10,000 x 200 / 2 x ( 40/100))`

Q=
`√(4,000,000/0.8 )`

Q=
`√(5,000,000)`

Q=2,236.067 rounded up to 2,236

Economic batch size =2,236 units