Question

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.

 

Answer 1

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)