Question

The assumptions of the production order quantity (EPQ) model are met in a situation where annual demand is 3650 units, setup cost is $50, holding cost is $12 per unit per year, the daily demand rate is 20 and the daily production rate is 100. What is the optimal order and setup cost?

A) 139.B) 174.C) 184.D) 365.E) 548.

Answer 1

C) 184

Step-by-step explanation:

Options are inconsistent with data given.

Optimal Order is the level of order that is made to keep the setup cost to a minimum level.

It can be calculated by using following formula.

EPQ =
`\sqrt{(2 X K X D)/(h X ( 1 - x ))}`

K = Setup Cost = $50

D = Annual demand = 3,650 units

h = Holding cost = $12

x = daily demand rate/ daily production rate = 20 / 100 = 0.2

Placing values in the formula

EPQ =
`\sqrt{(2 X 50 X 3650)/(12 X ( 1 - 0.2 ))}`

EPQ = 194.99 units = 195 units

Answer according to correct data

Question

The assumptions of the production order quantity model are met in a situation where annual demand is 3650 units, setup cost is $50, holding cost is $12 per unit per year, the daily demand rate is 10 and the daily production rate is 100. The production order quantity for this problem is approximately

Answer

Options are inconsistent with data given.

Optimal Order is the level of order that is made to keep the setup cost to a minimum level.

It can be calculated by using following formula.

EPQ =
`\sqrt{(2 X K X D)/(h X ( 1 - x ))}`

K = Setup Cost = $50

D = Annual demand = 3,650 units

h = Holding cost = $12

x = daily demand rate/ daily production rate = 10 / 100 = 0.1

Placing values in the formula

EPQ =
`\sqrt{(2 X 50 X 3650)/(12 X ( 1 - 0.1 ))}`

EPQ = 183.84 units = 184 units