Jan Kottas is the owner of a small company that produces electric knives used to
ID: 357383 • Letter: J
Question
Jan Kottas is the owner of a small company that produces electric knives used to cut fabric. The annual demand is for 8,000 knives, and Jan produces the knives in batches. On average, Jan can produce 150 knives per day; during the production process, demand has been about 40 knives per day. The cost to set up the production process is $100, and it costs Jan $0.80 to carry a knife for 1 year. How many knives should Jan produce in each batch? Jan should produceknives in each batch (round your response to the nearest whole number).Explanation / Answer
This problem will be solved as per model for Economic Production Quantity ( EPQ ) .
Given are following data :
Annual Demand = D = 8000 knives
Daily demand = d = 40 knives / day
Daily production capacity = p = 150 knives/ day
Production set up cost = Cs = $100
Annual unit inventory carrying cost = Ch = $0.80
Number of knives to be produced as per EPQ formula
= Square root ( 2 x Cs x D / Ch x ( 1 – d/p))
= Square root ( 2 x 100 x 8000/ 0.80 x ( 1 – 40/150) )
= Square root ( 2 x 100 x 8000/ 0.80 x 0.7333)
= 1651.48 ( 1651 rounded to nearest whole number )
JOE SHOULD PRODUCE 1651 KNIVES IN EACH BATCH
JOE SHOULD PRODUCE 1651 KNIVES IN EACH BATCH
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