Question

Jan Gentry is the owner of a small company that produces electric scissors used to cut fabric. The annual demand is 8,000 scissors, and Jan produces the scissors in batches. On average, Jan can produce 150 scissors per day, and during the production pro-cess, demand for scissors has been about 40 scissors per day. The cost to set up the production process is $100, and it costs Jan 30 cents to carry one pair of scissors for one year. How many scissors should Jan produce in each batch

Answer 1

Answer:

2,697 scissors per batch

Explanation:

Q = √[2KD / h(1 - x)]

• K = setup cost = $100
• D = annual demand = 8,000
• h = annual holding cost = $0.30
• x = annual demand / annual production rate = 8,000 / (150 x 200) = 0.267

Q = √{(2 x $100 x $8,000) / [$0.30 x (1 - 0.267)]} = √($1,600,000 / 0.22) = 2,696.8 ≈ 2,697 scissors per batch