Question

A manufacturer of hospital supplies has a uniform annual demand for 500,000 boxes of bandages. It costs ​$10 to store one box of bandages for one year and $250 to set up the plant for production. How many times a year should the company produce boxes of bandages in order to minimize the total storage and setup​ costs?

Answer 1

Answer: company can produce boxes 100 times per year.

Explanation:

Ordering cost per order, S = $250

Annual demand, D = 500,000

Holding or carrying cost per unit,  = $10

Economic order Quantity = $\sqrt{2 x Annual demand X ordering cost /carrying cost}$

=$\sqrt{ 2 X 500,000 X 250 /10}$ =  $\sqrt{25,000,000}$ = 5000

Optimal order quantity = 5000 boxes.

Number of times company can produce boxes =  Annual Demand/ Optimal order quantity =  500,000 / 5000 = 100  times