A manufacturing company sells its products directly to customers and operates 5

Question

A manufacturing company sells its products directly to customers and operates 5 days a week, 52 weeks a year. The production department of this company can produce at the rate of 60 units per day. The setup cost for a production run is $ 125.00. The cost of holding is $ 4.00 per unit per year. The demand for the item is continuous and constant and is 3,900 units per year. (Note: The demand occurs only when the company is operating, that is, 5 days a week for 52 weeks). Find the optimum number of units to be produced in one batch (economic production quantity). Round the number to nearest integer.

Explanation / Answer

Part 2:

EOQ = Sqrt (2*C*R/F) where

R = Forecasted Annual prod = 60 unit pd*5day pw*52w

= 60*5*52 = 15600 units

C = Setup cost = $125

F = Holding cost factor = $4

..

So EOQ = Sqrt (2*C*R/F)

ie EOQ = SQRT(2*125*15600/4) = 987

So optimum number of units to be produced in one batch (economic production quantity) = 987

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