Assume that our firm produces type C fire extinguishers. We make 30,000 of these fire
extinguishers per year. Each extinguisher requires one handle (assume a 300 day work your for
daily usage rate purposes). Assume an annual carrying cost of $1.50 per handles production setup
cost of $150, and a daily production rate of 300. What is the optimal production order quantity
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Answer:
Q p = 3000 units
Explanation:
In order to calculate optimal production quantity of any order, we need to have the following data with us;
- Demand of the product
- What is the ordering cost of product
- The holding cost of the product
- Daily usage rate of product
- Daily production rate of that product.
The formula can be written as;
Q p = √((2 x Demand x Order cost)/(Holding cost x (1- (Daily usage rate )/(Daily production rate))))
Q p = √((2 x 30000 x 150)/(1.5x (1- (100 )/300)))
Q p = 3000 units
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