Bryson Carpet Mills produces a variety of different carpets.Changing from production of one carpet to another involves a setup cost of $500.One particular carpet costs $8/yard to produce.Annual demand for this style is 50,000 yards.Bryson Mills produces carpet 200 days per year.The production process is most efficient when 2,000 yards/day are produced.Inventory carrying cost is estimated at 20 percent annually.What should be the production order quantity?

Question

Quizplus · Accepted Answer

The production order quantity can be determined using the economic order quantity (EOQ) formula:

EOQ = sqrt((2DS)/H)

where 
D = annual demand = 50,000 yards 
S = setup cost = $500 
H = inventory carrying cost = 20% of cost per yard = 0.20 x $8 = $1.60

Plugging in these values, we get:

EOQ = sqrt((2 x 50,000 x 500)/1.60) = 5,976 yards (rounded to the nearest whole number)

Therefore, the best choice is B, to produce 5,976 yards of the particular carpet. This quantity minimizes the total annual inventory cost by balancing setup cost and inventory carrying cost.

Bryson Carpet Mills Produces a Variety of Different Carpets