Question

A manufacturer has a steady annual demand for 22,638 cases of sugar. It costs ​$7 to store 1 case for 1​ year, ​$33 in set up cost to produce each​ batch, and ​$15 to produce each case. Find the number of cases per batch that should be produced to minimize cost

Answer 1

The number of cases per batch that the manufacturer should produce to minimize cost is 462 cases per batch.

How can inventory costs be minimized?

To minimize inventory costs, especially setup and holding costs, the economic order quantity (EOQ) technique is deployed.

The EOQ model refers to the ideal order or batch quantity a company should purchase per order or produce per batch to minimize its inventory costs.

Some of a company's inventory costs include holding costs, shortage costs, setup, and ordering costs.

Using the EOQ model shows the ideal minimum units that the manufacturer should produce per batch to minimize costs.

The EOQ formula is square root of: [2(setup costs)(demand rate)] / holding costs.

Data and Calculations:

Annual demand = 22,638 cases

Storage cost per case = $7

Setup cost per batch = $33

Product unit cost = $15 per case

EOQ = square root of: [2(setup costs)(demand rate)] / holding costs.

= square root of 2 x $33 x 22,638/$7

= square root of 213,444

= 462

Number of batches = 49 (22,638/462)

Thus, the number of cases per batch that the manufacturer should produce to minimize cost is 462 cases per batch.

Learn more about the EOQ model at brainly.com/question/17350373

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