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Lunna
2 months ago
10

Consider a firm with a daily demand of 100​ units, a production rate per day of 500​ units, a setup cost of​ $200, and an annual

holding cost per unit of​ $10. Suppose that the firm operates 300 days per year. How many units of inventory must their storage area be able to​ hold?
Business
1 answer:
stepan [3.5K]2 months ago
3 0
The storage capacity must be at least 1,095 to accommodate their EOQ

Explanation:

We will calculate the economic order quantity, which identifies the order amount that minimizes inventory costs. This size must meet the minimum requirements for storage.

D = annual demand = 100 units daily x 300 = 30,000

setup cost = ordering cost = 200

H = holding cost = 10

Q_{opt} = \sqrt{\frac{2*30,000*200}{10}}

EOQ = 1095.445115 = 1,095

The storage must have a capacity of at least 1,095 to accommodate their EOQ

How to Remember:

The annual demand and ordering cost are factored into the numerator. The holding cost is in the denominator.

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