Rolf Steps is the production manager for a local manufacturing firm.This company produces staplers and other items.The annual demand for a particular stapler is 1,600 units.The holding cost is $2 per unit per year.The cost of setting up the production line is $25.There are 200 working days per year.The production rate for this product is 80 per day.If Rolf decided to produce 200 units each time he started production of the stapler, what would his maximum inventory level be?
A)200
B)180
C)100
D)90

Question

Quizplus · Accepted Answer

The maximum inventory level occurs when production starts and is the difference between the production quantity and the amount consumed during the production run. With a production rate of 80 units per day and a demand rate of 1,600 units per 200 working days (8 units per day), the maximum inventory level is calculated as the production lot size minus the product of the daily demand rate and the time it takes to produce the lot size. For a lot size of 200 units, the time to produce this lot is 200 units / 80 units per day = 2.5 days. The demand during this time is 8 units/day * 2.5 days = 20 units. Therefore, the maximum inventory level is 200 units - 20 units = 180 units.

Rolf Steps Is the Production Manager for a Local Manufacturing