4. JaxMFG company produces an electronic product for which the annual demand is

Question

4. JaxMFG company produces an electronic product for which the annual demand is 20,000 units. Production averages 100 units per day, while demand is 40 units per day. Holding costs are $2.00 per unit per year, and setup cost is $400. Show your work (10 points)

(a) What is the Economic Production Quantity (EPQ) for this case?

(b) What is the maximum inventory level?

(c) How many order cycles (= production runs) are there per year? (The production runs should be a positive integer for production planning.)

(d) What are the total annual holding cost and setup cost (=ordering cost)

Explanation / Answer

Annual demand , D = 20,000 units

Production rate, p = 100 units per day

Demand rate, d = 40 units per day

Holding cost per unit per year, H = 2

Setup cost, S = 400

(a) EPQ = (2DS/(H*(1-d/p))) = (2*20000*400/(2*(1-40/100))) = 3651

(b) Maximum inventory level = Q*(1-d/p) = 3651*(1-40/100) = 2191

(c) Order cycles per year = D/Q = 20000/3651 = 5.48 ~ 6  

(d) Total annual holding cost = Ordering Order cycles per year * Setup cost + (Maximum inventory/2) * Holding cost

= S*D/Q + H*Q*(1-d/p)/2

= 400*5.48 + 2*2191/2

= $ 4382

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.