The production process at Father Dominic’s Pizza can produce 400 pizza pies per
ID: 436608 • Letter: T
Question
The production process at Father Dominic’s Pizza can produce 400 pizza pies per day; the ?rm operates 250 days per year. Father Dominic’s has a cost of $180 per production runand a holding cost of $5 per pizza-year. The pies are frozen immediately after they are produced and stored in a refrigerated warehouse with a current maximum capacity of 2,000 pies.a) Annual demand is 37,500 pies per year. What production run size should be used?
b) What is the total annual cost incurred in meeting demand?
c) How many days per year will the company be producing pizza pies?
Explanation / Answer
Given, Production/Order Cost, C= $180 Holding Cost, h= $5 per yr Demand, D= 37500 per yr Q* = ? EOQ, Q = sqrt(2*C*D/h) = sqrt(2*180*37500/5) = 1643 approx (a) No. of production runs = D/Q* = 37500/1643 =23 approx (b) Total Cost = Production Cost + Holding Cost Annual Holding Cost = (Q*/2)* h = (1643/2) * 5 = $4107.5 Annual Production Cost = C*D/Q = 180*37500/1643 = $4107.5 Total Cost = $4107.5 + $4107.5 = $8215 (c) Company can produce 400 pizza pies per day Each production run will run for 1643/400 days = 4.1075 days Total days = no.of production runs * 4.11 = 23 * 4.1075 = 94.4725 = 98 days approx
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