# Inventory planning & stock control

#### sally345

##### New member
Alyce operates a factory that manufactures pencil boxes which she sells to stationery store.
Annual demand is 1 million pencil boxes per year
Setup cost is $5000 per batch Holding cost is$3 per year for each pencil boxes
Maximum production capacity is 2 million pencil boxes per year

Currently, pencil boxes are manufactured in 10 batches.
1 a) Find the optimum production quantity that Alyce should produce to minimize her costs.
Economic Batch Quantity
= √((2 × 5000× 1,000,000) / (3 x (1-(1,000,000/2,000,000))
= √(10,000,000,000 / 1.5)
= 81,650
b) Calculate the current annual holding cost and setup cost.
Batch Quantity = Annual Demand ÷ Number of batches
= 1,000,000 ÷ 10
= 100,000 units
Annual Holding Cost
= (100,000/2) × 3 × (1-(1,000,000/2,000,000))
= $75,000 Setup Cost = 10 × 5000 =$50,000
Total Current Cost = ($75,000 +$50,000) = \$125,000

c) Draw a diagram showing stock level for the first batch, assume 1 year has 250 working days

#### sally345

##### New member
Anyone can help me answer question c