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Finding optimum production

A manufacturing company sells its products directly to customers and operates 5 days a week, 52 weeks a year. The production department of this company can produce at the rate of 60 units per day. The setup cost for a production run is $125.00. The cost of holding is $4.00 per unit per year. The demand for the item is continuous and constant and is 3,900 units per year. (Note: The demand occurs only when the company is operating, that is, 5 days a week for 52 weeks). Find the optimum number of units to be produced in one batch (economic production quantity). Round the number to the nearest integer.


Solution Preview

Dear Student:

This problem requires you to use the Economic Order Quantity formula that is modified for production:

Qp = Square root of [ (2DS) / (H*(1 - d/p)) ]

Where D = annual demand in units, S = setup cost per setup, H = holding cost per unit per year, d = annual ...

Solution Summary

This solution explains in detail how you find the optimum production quantity and minimize costs using the economic production quantity approach.