Question

Determine the economic run size?

Answer 1

Answer:

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