15) Leonard Presby, Inc., has an annual demand rate of 2000 units per year but c

Question

15) Leonard Presby, Inc., has an annual demand rate of 2000 units per year but can produce at an average production rate of 3000 units per year. Setup cost is $30; holding costs are $4 per unit per year. What is the optimal number of units per production run (to the nearest whole number)? A)   174 B)   300 C)   320 D)   380 E)   None of the above are within 1 unit of the correct answer 15) Leonard Presby, Inc., has an annual demand rate of 2000 units per year but can produce at an average production rate of 3000 units per year. Setup cost is $30; holding costs are $4 per unit per year. What is the optimal number of units per production run (to the nearest whole number)?

Explanation / Answer

B) 300

Production Order Quantity= ((2*Annual Demand*Cost per order)/Holding cost(1- demand/ production rate)1/2

Annual Demand = 2000

Production capacity = 3000

Cost per order or setup cost= 30$

Holding cost = 4$ per unit

= (2*2000*30/4(1-2000/3000))1/2

Production order quantity = 300 units

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