Question

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? A. 1095 B. 9798 C. 980 D. 1081 E. 1225 F. 876

Answer 1

Answer: 980

Explanation:

The number of units of inventory that the storage area must be able to​ hold will be calculated as:

Demand = 100 × 300 = 30000

Production rate per day = 500

Setup cost = $200

Annual holding cost = $10

We then use the economic order quantity formula to solve and the answer will be gotten as 1225

The maximum inventory will now be:

= EQQ × (1-d/p)

= 1225 × (1-100/500)

= 1225 × ( 1 - 0.2)

= 1225 × 0.8

= 980