A shop that makes candles offers a scented candle, which has a monthly demand of
ID: 2746511 • Letter: A
Question
A shop that makes candles offers a scented candle, which has a monthly demand of 360 boxes. Candles can be produced at a rate of 36 boxes per day. The shop operates 20 days a month. Assume that demand is uniform throughout the month. Setup cost is $60 for a run, and holding cost is $2 per box on a monthly basis. Determine the following: (A) the economic run size (B) the maximum inventory (C) the number of days in a run The daily usage rate (u) is 18 boxes. The daily production rate (p) is 36 boxes.Explanation / Answer
Economic run size calculation
Assuming that organization works 5 days a week and 2 days non working.
18 Unit is the usage per day, hence on 5th day it should have 2 days inventory considering the last two days has the uniform requirement through the 7 days of the week.
Daily usage requirement = 18/Day
Inventory required for week end = 36
Inventory required for a day on weekend = 36/2
Calculating for 30 days month, 4 week include 28 days hence on 4th Friday of the month it should have inventory of 4 days which is extra two days.
One runsize should be of 5 days with capacity of = 18 + 8 + 1 = 27
Hence total production in 20 days = 27 X 20 = 540
Total usage = 18 X 30 = 540
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