Jack Spratt is the production manager for a manufacturing firm that produces wizzy-gadgets and other items.The annual demand for a particular wizzy-gadget 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 his maximum inventory level is 180 units,how many units did he produce each time he started production of the wizzy-gadgets?
A)200
B)180
C)100
D)90
E)None of the above

Question

Quizplus · Accepted Answer

The Economic Production Quantity (EPQ) formula is used here: EPQ = sqrt((2 * Demand * Setup Cost) / Holding Cost * (Production Rate / (Production Rate - Demand Rate))). Plugging in the values: Demand = 1600, Setup Cost = 25, Holding Cost = 2, Production Rate = 80, Demand Rate = 1600/200 = 8. Solving gives EPQ = 200 units.

Jack Spratt Is the Production Manager for a Manufacturing Firm