Question

Wilson Publishing Company produces books for the retail market. Demand for a current book is expected to occur at a constant annual rate of 7,500 copies. The cost of one copy of the book is $14. The holding cost is based on an 21% annual rate, and production setup costs are $135 per setup. The equipment on which the book is produced has an annual production volume of 23,000 copies. Wilson has 250 working days per year, and the lead time for a production run is 15 days. Use the production lot size model to compute the following values:

1. Maximum inventory. Round your answer to the nearest whole number. Do not round intermediate values.
   
   Maximum inventory =
   
2. Total annual cost. Round your answer to the nearest dollar. Do not round intermediate values.
   
   Total annual cost =

Answer 1

Answers are in BOLD

	Daily production rate, p	23000/250	92
	Daily demand/usage rate, d	D/o	30.0
	operation days, o=	Given	250
	Annual demand, D=	Given	7500
	Setup or cost per order, S	Given	$135.00
	item cost	Given	$14.00
	holding cost percent	Given	21.0%
	holding cost per year, H=	holding cost percent*item cost	$2.94
	Production order quantity, Q=	SQRT(2*S*D/(H*(1-d/p)))	1010.97
	length of production run in days, t	t= Q/p	10.99
	#orders per year or production runs per year=	Annual demand/ordered quantity, D/Q	7.42
Answer a	Maximum inventory level, pt - dt	Total produced during the product run- total used during the production run	681.30
	Average inventory level	Maximum inventory level/2	340.65
	annual inventory holding cost=	average inventory*holding cost per year	1001.52
	Total annual setup or order cost=	No. of orders*order cost= D*S/Q	1001.52
Answer b	total ordering+holding cost		2003.03