Bryson Carpet Mills produces a variety of different carpets. Changing from produ

Question

Bryson Carpet Mills produces a variety of different carpets. Changing from production of one carpet to another involves a setup cost of $2,400. One particular carpet costs $4 per yard to produce. Annual demand for this style is 162,000 yards. Bryson Carpet Mills produces carpet 300 days per year. The production process is most efficient when 5,400 yards per day are produced. Inventory carrying cost is estimated at 20 percent annually.

What should be the production order quantity? (Round up your answer to the next whole number.)

  Production order quantity _______ yards

Explanation / Answer

D = 162,000

Setup Cost - C0 = 2400

Carrying Cost - H = 0.2

production rate - p = 5400

Daily Demand - d =(162000 /300) = 540

POQ = Sqrt((2 * D * Co)/(H * C)) * Sqrt(( p / (p – d))

POQ = Sqrt ( 2*162000*2400)/(0.2*4)) * Sqrt((5400/(5400 – 540))

POQ = 32863.35 = 32863 yards

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