Question

A manufacturer of hospital supplies has a uniform annual demand for 500,000 boxes of bandages. It costs ​$10 to store one box of bandages for one year and $250 to set up the plant for production. How many times a year should the company produce boxes of bandages in order to minimize the total storage and setup​ costs?

Answer 1

Answer: company can produce boxes 100 times per year.

Step-by-step explanation:

Ordering cost per order, S = $250

Annual demand, D = 500,000

Holding or carrying cost per unit, = $10

Economic order Quantity =
`√(2 x Annual demand X ordering cost /carrying cost)`

=
`√( 2 X 500,000 X 250 /10)` =
`√(25,000,000)` = 5000

Optimal order quantity = 5000 boxes.

Number of times company can produce boxes = Annual Demand/ Optimal order quantity = 500,000 / 5000 = 100 times