Answer:
Based on the data, the holding cost per unit per year that will enable the desired production cycle is:
= $18.00.
Explanation:
a) Data and Calculations:
Annual demand of the product = 10,000 units
Demand per day, d = 40 (10,000/250) units
Given days in a year = 250 days
Production, p per day = 200 units
Ordering cost, S = $7.20 per order
Q (demand for four hours or half a day) = 20 units (40/2) following a four-hour cycle
Number of orders = 10,000/20 = 500
Total ordering costs = $3,600 (500 * $7.20)
Since EOQ = Q = 20 units
20 = Square root of (2*D*S)/H
Where:
D = Annual demand
S= Ordering cost
H = Holding cost
20 = Square root of (2 * 10,000 * $3,600)/H *10,000
20 = Square root of 72,000,000/(H * 10,000)
Substituting H with $18
= Square root of 72,000,000/180,000
= Square root of 400
= 20
