Alyce operates a factory that manufactures pencil boxes which she sells to stationery store.
Additional information:
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
Additional information:
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