Answer:
Setup cost (S) = 1800
Holding cost (H) = 2.5
Annual demand (D) = 20000
Daily demand (d) = Annual demand / Number of working days = 20000 bottles/250 = 80 bottles daily
Daily production (p) = 400
a. Given production quantity Q = 10000
Holding cost = 1/2*[(p-d)/p]*QH
Holding cost = ((400-80)/(2*400))*10000 *2.5= 10000
Ordering cost = (D/Q)S = (20000/10000)*1800 = 3600
Total Cost = Annual holding cost + Annual ordering Cost = 10000 + 3600 = 13600
b. Economic production Quantity (EPQ) = Q
Q = √2DS/H √p/p-d
Q = √2*20000*1800/2.5 √400 / 400-80
Q = 6000 bottles
Holding cost = 1/2*[(p-d)/p]*QH
Holding cost = ((400-80)/(2*400))*6000 *2.5= 6000
Ordering cost = (D/Q)S = (20000/6000)*1800 = 6000
Total Cost = Annual Holding cost + Annual ordering cost = 6000 + 6000 = 12000
C. Cost difference between the current production schedule and the EPQ = 13600 - 12000 = 1600
