In: Operations Management

The assumptions of the production order quantity model are met in a situation where annual demand is 3650 units, the setup cost is $50, holding cost is $12 per unit per year, the daily demand rate is 10 and the daily production rate is 100. The production order quantity for this problem is approximate.

For above data, production order quantity can be calculated by,

$$ \sqrt{2 * K * D / h *(1-x)} $$

where,

\(\mathrm{K}=\) Setup cost

\(\mathrm{D}=\) Annual demand

\(\mathrm{h}=\) Holding cost

\(\mathrm{x}=\mathrm{d} / \mathrm{p}\) (daily demand rate/ daily production rate)

Hence, in this case,

production order quanity \(=\sqrt{2 * 50 * 3650 / 12 *(1-10 / 100)}=184\) (rounding off)

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