The demand for 1,000 units of a part to be used at a uniform rate throughout the

Question

The demand for 1,000 units of a part to be used at a uniform rate throughout the year may be met by manufacturing. The part can be produced at the rate of 3 per hour in a department that works 1,880 hours per year. The set-up cost per lot is estimated to be $40, and the manufacturing cost has been established at $5.20 per unit. Interest, insurance, taxes, space, and other holding costs are $3.10 per unit per year. Calculate the economic manufacturing quantity. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Explanation / Answer

economic manufacturing quantity = sqrt(2KD/F*(1-x))

K = $40

D = 1000

F = $3.1

P =1,880*3= 5640

x=1000/5640

economic manufacturing quantity = sqrt(2*40*1000/(3.1*(1- 1000/5640))) = 178 units

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