Johnson Plastics makes and sells, among many other things, specialty plastic dis

Question

Johnson Plastics makes and sells, among many other things, specialty plastic display cases for retail stores. Johnson’s expected demand for the display cases is 1,000 units, and average daily demand is 3 units. The production process is most efficient when 12 units per day are produced at a cost of $119 per unit. Setup cost is $39. Inventory carrying cost at Johnson is determined to be 8 percent annually.

1. What is the best production order quantity?

2. How many days is a required production run?

Explanation / Answer

best production order quantity = sqrt {(2Q*CO)/(CU*CC%)}

= sqrt {(2 X1000X16.5)/(119X0.08)

= 58.87

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