Question

a factory has a production plan calling for 20,000 products/year. the cost to process a single...

a factory has a production plan calling for 20,000 products/year. the cost to process a single work order is $50 and the cost to hold one unit of one product in stock for one year is $5. the production rate is 100 units/day and the usage rate is 60 unit/day.

1. write the equation for epq and label the variable.

2. compute the factory EPQ

3. What is the maximun level of finished goods inventory?

Business   Operations-Management   
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Homework Answers

Answer #1

Following are the set of data provided :

Annual demand = D = 20,000 units

Daily demand ( usage ) rate = d = 60 units/ day

Daily production rate = p = 100 units/ day

Ordering cost = Co = $50

Holding cost per unit per year = Ch = $5

Equation for EPQ

= Square root ( 2 x Co x D / Ch x ( 1 – d/p))

Value of EPQ

= Square root ( 2 x 50 x 20,000/5 x ( 1 – 60/100) )

= Square root ( 2 x 50 x 20,000 / 5 x 0.4)

= Square root ( 1000000)

= 1000

EPQ = 1000

Maximum level of finished goods inventory

= EPQ x ( 1 – d/p)

= 1000 x ( 1 – 60/100)

= 1000 x 0.4

= 400

MAXIMUM LEVEL OF FINISHED GOODS INVENTORY = 400 UNITS
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