Scenario 5 Guemmer Specialty Foods can produce their famous cherry pies at a rat
ID: 354130 • Letter: S
Question
Scenario 5 Guemmer Specialty Foods can produce their famous cherry pies at a rate of 1650 cases per day (this is the daily production rate). The firm distributes the pies to regional stores and restaurants at a steady rate of 250 cases per day (this is the daily demand rate). The cost of each production setup is $320. Annual holding costs are $11.50 per case per year. Annual demand is 62,500 cases. Assume 250 working days per year. Assume the POQ (Production Order Quantity) model is used by Guemmer Specialty Foods. Refer to Scenario 5. What is the optimal Production Order Quantity (POQ)?
320.33
250
1650
2024.70
Explanation / Answer
As per EOQ Model, POQ = [2 * (Annual demand * Setup Cost) / Annual Carrying Cost ]^(1/2)
Annuald demand = 250*250 days = 62500
Setup cost = $320
Annual carrying cost = h* (1-d/p)
h = 11.5 , d=250 cases p = production per day = 1650
On putting all values in equaton, POQ = 2240;7
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