Problem 23 Healthy Plants Ltd. (HP) produces its premium plant food in 50-pound

Question

Problem 23 Healthy Plants Ltd. (HP) produces its premium plant food in 50-pound bags. Demand for the product is 15,000 pounds per week. HP operates fifty weeks per year and can produce 24,000 pounds per week. The setup cost is $220 and the annual holding cost rate is $0.56 per bag. Currently, HP produces its premium plant food in batches of 1,200,000 pounds Your answer is incorrect. Try again Calculate the maximum inventory level for HP according to its current operating policy 2102.29 ounds (Round your answer to 2 decimal places, the tolerance is +/-0.01. Do not round your intermediate computations.) Your answer is incorrect. Try again. Calculate the total annual costs of this operating policy. 30020.77 (Round your answer to 2 decimal places, the tolerance is +/-0.01. Do not round your intermediate computations.)

Explanation / Answer

D = annual demand = 50 weeks x 15,000 pounds per week = 750,000 pounds
d = weekly demand = 15,000 pounds
p = weekly production = 24,000 pounds
S = setup cost = $220
H = annual holding cost = $0.56 per bag = 0.56 / 50 = $0.0112 per pound

Maximum Inventory Level = Lot size(Q) x (1 - d/p) = 1,200,000 x (1 - 15/24) = 450,000 pounds

Total annual cost = (D / Q) x S + (Q/2) x (1 - d/p) x H = (750000/1200000)*220 + (450000/2)*0.0112 = $2,657.5

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