Question

Demand D = 60000 per yearCost price Cp = Rs. 250 per unitSet up costs Co = Rs. 4000 per setupInventory carrying costs Ch = 2% per month = 24% per yearProduction capacity P = 400 × 300 = 120000 per year

Economic Lot Size:

Q∗ =(2.D.CoCh)−−−−−−−−−−√×(PP−D)−−−−−−−−−√=(2.D.CoCp.I)−−−−−−−−−−√×(PP−D)−−−−−−−√=(2×60000×4000250×0.24)−−−−−−−−−−−−−−−−−√×(120000120000−60000)−−−−−−−−−−−−−−−−√=4000 units

Number of production runs per year: N = 60000/4000 = 15 runs

Total inventory costs =Holding costs + setup costs=Q.Ch2×(1−DP)+N×Co=4000×250×0.242×(1−60000120000)+15×4000=Rs.120000

Answer 1

Answer:

A manufacturing company uses an EOQ (Economic Order Quantity) approach in planning its production of gears. The following information is available. Each gear costs Rs. 250 per unit, annual demand is 60,000 gears, set up costs are Rs. 4,000 per setup and the inventory carrying cost per month is established at 2% of the average inventory value. When in production, these gears can be produced at the rate of 400 units per day and this company works only for 300 days a year. Determine the economic lot size, the number of production runs per year and the total inventory costs