Healthy Plants Ltd. (HP) produces its premium plant food in 50-pound bags, Deman
ID: 428153 • Letter: H
Question
Healthy Plants Ltd. (HP) produces its premium plant food in 50-pound bags, Demand for the product is 10,000 pounds per week. HP operates fifty weeks per year and can produce 23,000 pounds per week. The setup cost is $180 and the annual holding cost rate is $0.58 per bag, Currently, HP produces Its premlum plant food in batches of 1,500,000 pounds. Your answer is incorrect. Calculate the maximum inventory level for HP according to its current operating policy, pounds (Round your answer to 2 deciai places, the tolerace is+/-0.01. Do not round your internediale compulatiovis.) HOW SOUUTON SHOW ANSWER Your answer is incorrect Calculate the total annual costs of this operating policy.Explanation / Answer
Maximum inventory level for HP
= Batch size x ( 1 – weekly demand for the product/ weekly production capacity of the product)
= 1,500,000 x ( 1 – 10000/23000)
= 847826.086 ( 847826.09 pounds rounded to 2 decimal places )
MAXIMUM INVENTORY LEVEL = 847826.09 POUNDS
Number of set ups in a year
= annual demand / Batch size
= weekly demand x 50 weeks / Batch size
= 10000 x 50 / 1,500,000
= 500,000/1,500,000
= 1/3
Annual set up cost = Number of annual set ups x Annual set up cost = $ 1/3 x 180 = $60
Average inventory = Maximum inventory / 2 = 847826.09/ 2 = 423913.04
Since annual holding cost per bag $0.58 and each bag contains 50 Pound,
Annual holding cost per pound = $0.58/50 = $0.0116
Therefore , annual inventory holding cost
= Annual holding cost per pound x average inventory ( pounds)
= $ 0.0116 x 423913.04
= $4917.39
Annual inventory cost of current ordering policy
= Annual ordering cost + annual inventory holding cost
= $60 + $4917.39
= $4977.39
TOTAL ANNUAL COST OF THE OPERATING POLICY = $4977.39
MAXIMUM INVENTORY LEVEL = 847826.09 POUNDS
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