A Happy Postage Conmany sells pre-stampd envelopes. The damand for pre-stapmed e

Question

A Happy Postage Conmany sells pre-stampd envelopes. The damand for pre-stapmed envelopes is always 60 a day, and there are 200 working days at the Happy Postage Company. It costs the Happy Postage Company $100 to set-up the produtcion process each time it wasnts to make a batch of pre-stamped envelopes. The Happy Postage Company can produce 150 pre-stamped envelopes in a working day, and it costs the company $0.80 to keep the pre-stamped envelope in inventory for one year. The Happy Postage Company also does all of its inventory according to "Economic Production Quantity" formula. Please answer the following question.

How many pre-stamped envelped does the Happy Postage Compant produce each time it sets up to purchase pre-stamped envelopes? (Round to the nearest whole number.)

Explanation / Answer

Demand Rate = 60 per day

Production rate = 150 per day

k = Demand rate/Production rate = 60/150 = 0.4

Annual Demand, D = 60*200 = 12000

Set up cost, S = 100

Holding cost, H = 0.8

According to EPQ model, number of pre-stamped envelopes the company should produce = (2*D*S / H / (1-k))^0.5

= (2*12000*100/0.8/(1-0.4))^0.5 = 2236

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