2. A company produces a product thai requires part x in its construction. Tbe pl
ID: 326565 • Letter: 2
Question
2. A company produces a product thai requires part x in its construction. Tbe plans on building 2500 units of the product over the next year. and For 2500 units of part x. The cost of placing an order for part x is $15, and each unin ecset compaey therefore, bas a S4 per year to carry in inventory. Each part x has a cost of $30 . (5 Points) A. What is the EOQ? B. The company has the capability of producing part x intemally. It estimates a setup cost of S250 per production run. The production rate would be 4800 units of pazt X per year. What is the economic (run) production size? (One year - 250 days) (4 Points)
Explanation / Answer
A. EOQ= squareroot ( 2* Demand* Ordering cost / Holding cost) = squareroot (2*2500*15/4) = 137
B. Economic Production lot Size, EPQ = squareroot [2* Demand * Setup cost / Holding cost { (production rate- demand)/ Production rate}]
= squareroot [2*2500*250 / 4 *{(4800-2500)/4800}] = 387 units
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