Jan Kottas is the owner of a small company that produces electric knives used to

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 produce knives in each batch round your response to the nearest whole number ).

Explanation / Answer

Annual demand (D) = 8000 knives

Production rate (p) = 150 knives per day

Demand rate (d) = 40 knives per day

Setup cost (S) = $100

Holding cost (H) = $0.80

Economic production quantity = sqrt of {2DS/H [1-(d/p)]}

= sqrt of {(2x8000x100)/0.80[1-(40/150)]}

= sqrt of {2000000(1-0.27)

= sqrt of (2000000 x 0.73)

= sqrt of 1460000

= 1208 knives

Jack should produce 1208 knives in each batch

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