Question

An item is produced at the rate of 50 items per day. The demand occurs at the rate of 25 units per day. If the set up cost is Rs. 100/- per run and holding cost is Rs.0.01 per unit of item per day, find the economic lot size for one run, assuming that the shortages are not permitted.

Answer 1

Given:

Production rate = K = 50 items

Demand rate = R = 25 items

Set up cost = 100

Holding cost = 0.01

To Find:

Economic lot size for one run

Solution:

Economic lot size = √ 2c3/c1 × √RK/ K-R

= √ 2 × 100/0.01 × √ 25×50 / 50-25

= √ 200/0.01 × √1250/25

= 1000 units

Now, days = Q/r = 1000/25

= 40 days

Minimum daily cost = C = √2C1C3r √ K-R/K

= √ 2 × 0.01 × 100 × 25 √ 50-25/25

= 5

Answer: Minimum cost per run = 5 × 40 = 200