Marvelous Manufacturing produces a product for which the annual demand is 10,00
ID: 327851 • Letter: M
Question
Marvelous Manufacturing produces a product for which the annual demand is 10,00 units.The production rate is 100 per day, while the demand is 50 per day. Holding costs are $1.25 per unit per year; set up costs are $200. Marvelous will use the EPQ to determine their inventory policy. Round the first three answers up to the nearest integer (whole number).
Marvelous Manufacturing produces a product for which the annual demand is 10,000 units. The production rate is 100 per day, while the demand is 50 per day. Holding costs are $1.25 per unit per year; set up costs are $200. Marvelous will use the EPQ to determine their inventory policy. Round the first three answers up to the nearest integer whole number.) What is the EPQ? What is the Maximum Inventory Level? What is the Run Time, in days? What is the total inventory cost of this plan? Round to the nearest whole dollar, do not include the dollar sign or any commas.Explanation / Answer
Given are the following details :
Annual demand = D = 10,000 units
Daily demand rate = d = 50
Daily production rate = p = 100
Set up cost = Cs = $ 200
Holding cost per unit = Ch = $1.25
Therefore , EPQ = Square root ( 2 x Cs x D / Ch x ( 1 – d/p))
= Square root ( 2 x 200 x 10000 / 1.25 x ( 1 – 50/100))
= Square root ( 2 x 200 x 10000 / 1.25 x 0.5)
= 2529.82 ( 2530 rounded to nearest whole number )
EPQ = 2530
Maximum inventory level = EPQ x ( 1 – d/p) = 2530 x ( 1- 50/100) = 2530 x 0.5 =1265
MAXIMUM INVENTORY LEVEL = 1265
Run time = EPQ/ Daily production = 2530 / 100 = 25.30 days
RUN TIME = 25.30 DAYS
Annual set up cost = Set up cost x Number of set ups = Cs x annual demand/EPQ = 200 x 10,000 / 2530 = $790.51
Annual inventory holding cost
= annual unit inventory holding cost x Average inventory
= Ch x Maximum inventory / 2
= Ch x 1265/2
= 1.25 x 632.5
= $790.62
Total inventory cost of this plan
= Annual set up cost + annual inventory holding cost
= $790.51 + $790.62
= $1581.13
TOTAL INVENTORY COST OF THIS PLAN = $1581.13
EPQ = 2530
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