Question

Emarpy Appliances Inc. wants to determine the optimal production policy for their best selling refrigerator. The demand for this has been relatively constant at about 8,000 each year. The production capacity for this product is limited to 200 units per day. Each time production starts, it costs the company $120 to move materials into place, reset the assembly line, and clean the equipment. The holding cost of a refrigerator is $50 per unit per year. Assume there are 250 working days per year. If Emarpy Inc wants to minimize the total annual inventory cost, how many refrigerators should be produced in each production run?

Answer 1

Answer:

Q' = 213.80

Explanation:

P(d): production rate per day = 200

Ic: Installation cost = 120

D: Demand = 8000

D(d): demand rate per day = 32

Uc: Unit cost (holding) = 50

Applying into Production order quantity model formula

$Q'= \sqrt{\frac{2*D*Ic}{(1 - \frac{D(d)}{P(d)}) * Uc } } = \sqrt{\frac{2*8000*120}{(1 - \frac{32}{200})*50 } } = 213.80$