Consider a product with a daily demand of 400 units, a setup cost per production run of $100, an annual holding cost per unit of $24.00, and an annual production rate of 292,000 units. The firm operates and experiences demand 365 days per year. Suppose that management is currently using an Order Quantity of 1103 units without knowing if this is the optimal order quantity.

1) What is the order quantity the firm should use?

2) If the annual production rate increases, what would happen to the optimal order quantity calculated in (1)?

A) Increase

B) Decreases

C) Stays the same

D) Cannot be determined

3) Calculate the total annual cost using the current (wrong) policy

4) Calculate the total annual using the correct policy

5) How much money per year the company saves by using the appropriate order size?

Answer rating: 100% (QA)

To determine the optimal order quantity and compare the costs we can use the Economic Order Quantity ... View the full answer