Question

Rego Circuits supplies microcomputer circuitry for customers that build super computers. Their annual demand is 36,000 units, with a setup cost of $25 per batch and a holding cost of $0.45 per unit per year. Their manufacturing facility can produce circuits at a rate of 300 units per day, and they are able to operate 360 days a year. (Total 10 Points) a) What is Cesar Rego’s economic production quantity? What is the maximum inventory level, the time between orders, the total setup cost, and the total holding cost for this EPQ? (5 Points) b) Please draw one inventory cycle of the saw tooth model for this EPQ. Do not forget to label the x and y axis on your model! (5 Points)

Answer 1

EOQ = 2,000

Time between order = 10 days

Setup and Ordering Cost $450

ATTACHED GRAPH

Step-by-step explanation:

`Q_(opt) = \sqrt{(2DS)/(H)}`

Where:

D = annual demand = 36,000

S= setup cost = ordering cost = 25

H= Holding Cost = 0.45

`Q_(opt) = \sqrt{(2(36,000)(25))/(0.45)}`

EOQ = 2,000

2,000 / 300 unit per day = 6.67

Setup cost:

36,000 units / 2,000 per batch x $25 cost per batch = $ 450

Holding cost:

2,000 units / 2 x $0.45 per unit = $ 450

36,000 units / 360 days = 100 units per day

2,000 units / 100 unit = 20 days

IMPORTANT DISCLAMER

As we are given with no safety stock we assume is zero

If there was any, then we should draw a line at this stock and move the graph upwards.