Bryson Carpet Mills produces a variety of different carpets. Annual demand for t

Question

Bryson Carpet Mills produces a variety of different carpets. Annual demand for this style is 165,000. Bryson Carpet Mills produces carpet 300 days per year. The production process is most efficient when 7,500 yards per day are produced at a cost of $4.5 per yard. Inventory carrying cost is estimated at 15 percent annually.

     In the past, changing from production of one carpet to another involved a setup cost of $2,500 and resulted in an optimal production order quantity of 36,318 yards. However, after implementing a process change, Bryson Carpet Mills now finds that it can reduce setup cost to $2,000.

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

Bryson Carpet Mills produces a variety of different carpets. Annual demand for this style is 165,000. Bryson Carpet Mills produces carpet 300 days per year. The production process is most efficient when 7,500 yards per day are produced at a cost of $4.5 per yard. Inventory carrying cost is estimated at 15 percent annually.

     In the past, changing from production of one carpet to another involved a setup cost of $2,500 and resulted in an optimal production order quantity of 36,318 yards. However, after implementing a process change, Bryson Carpet Mills now finds that it can reduce setup cost to $2,000.

Explanation / Answer

Annual Deman - D = 165,000

Set up Cost Co = 2000

Holding cost - H = 0.15

C = $4.5

d = (165000/300) = 550

p = 7500

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

POQ = Sqrt ( 2*165000*2000)/(0.15*4.5)) * Sqrt((7500/(7500 – 550))

POQ = 32483.16 = 32484 yards

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