Question

a) A manufacturer has a steady annual demand for 43, 520 cases of sugar. It costs ​$10 to store 1 case for 1​ year, ​$34 in set up cost to produce each​ batch, and ​$15 to produce each case. Find the number of cases per batch that should be produced to minimize cost.

b) Every​ year, the same manufacturer sells 107,856 cases of cookie mix. It costs them $2 per year in electricity to store a​ case, plus they must pay annual warehouse fees of ​$3 per case for the maximum number of cases she will store. If it costs them $749 to set up a production​ run, plus ​$7 per case to manufacture a single​ case, how many production runs should they have each year to minimize their total​ costs?

Answer 1

Economic Order Quantity refers to the number of unit the company should add to the inventory and the order is made to minimize the total inventory cost. It maintain a balance between ordering costs and carrying costs. Reorder point is the level of inventory which the firm holds in stock and when the inventory level reach this point, the firm must reorder the item.

EOQ act as a review inventory system to monitor the inventory level continuously and once the level reaches the reorder point, a fixed quantity of order is placed. Thus EOQ helps in calculating reorder point and optimal reorder quantity to avoid shortage of inventory.

a) Da 413 520 cases g: $34/setup Cost-φ 15/case 10 l0