A manufacturer of laptop computers operates a plant with an annual capacity of 6
ID: 2613302 • Letter: A
Question
A manufacturer of laptop computers operates a plant with an annual capacity of 6,630,000 laptop units. One of its models is expected to sell 390,000 units in the coming year. How large should each product lot be if it costs $575 to change production from one model to another? Assume that the manufacturer values each laptop unit at $280 dollars and it has a holding interest rate of 2%. you should round your answer up to the nearest laptop unit.
Please show all work and calcuations for this in order to get your solution rated.
Explanation / Answer
Calculation of Economic order Quantity (EOQ) /(Lot size)
EOQ = (2* Annual Demand units * Ordering cost /Carrying cost per unit )^(1/2)
Annual Demand units = 390000 Units
Ordering cost = $575
Carrying cost per unit = 280*2% = $5.6 Per unit
Hence EOQ = (2*390000*575 /5.6)^(1/2)
= (80,089,286 )^(1/2)
= 8949
Hence Each product lot should be of 8949 units
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