Louisiana Specialty Foods can produce its famous meat pies in its factory at a production rate of 1650 cases each per day. The firm distributes the pies to regional stores and restaurants whose demand is a steady demand rate of 250 cases per day. The cost of setup, cleanup, idle time in transition from other products to pies is $320. Annual holding costs are $11.50 per case. Assume 250 days per year. What is the economic production quantity?

Question

Alvin Newton

Business

24 February, 08:45

Louisiana Specialty Foods can produce its famous meat pies in its factory at a production rate of 1650 cases each per day. The firm distributes the pies to regional stores and restaurants whose demand is a steady demand rate of 250 cases per day. The cost of setup, cleanup, idle time in transition from other products to pies is $320. Annual holding costs are $11.50 per case. Assume 250 days per year. What is the economic production quantity?

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Answers (1)

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Brent Knight · Answer 1

economic production quantity = 2024.6 units

Explanation:

The optimal production run is the economic batch units that minimizes the balance of set-up cost and holding cost. It can be determined by adjusting the economic order quantity (EOQ) model for gradual replenishment,

EBQ = √ (2 * Co * D) / Ch (1-D/R)

EBQ - Economic / optimal production run

Co - set-up cost per run

Ch - holding cost per unit per annum

D - Annual Supply - 9800 * 280

Production rate per day-5000

Optimal production run

= √ (2 * 320 * 265*250) / 11.50 * (1-250*250/1650 * 250)

= 2024.6 units