Question

Jack Spratt is the production manager for a manufacturing firm that produces wizzy-gadgets and other items. The annual demand for a particular wizzy-gadget is 1,600 units. The holding cost is $2 per unit per year. The cost of setting up the production line is $25. There are 200 working days per year. The production rate for this product is 80 per day. If his maximum inventory level is 180 units, how many units did he produce each time he started production of the wizzy-gadgets

Answer 1

200 units

Step-by-step explanation:

For computing the number of units produced each time we need to applied the economic order quantity formula which is shown below:

`= \sqrt{\frac{2* \text{Annual demand}* \text{Ordering cost}}{\text{Carrying cost}}}`

where,

Annual demand is 1,600 units

Ordering cost per order is $25

And, the carrying cost or holding cost per unit per year is $2

Now placing these values to the above formula

So, the economic order quantity is

`= \sqrt{\frac{2* \text{1,600}* \text{\$25}}{\text{\$2}}}`

= 200 units