Three items are produced in a small fabrication shop. The shop management has established the requirement...

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Three items are produced in a small fabrication shop. The shop management has established the requirement that the shop never has more than $3000 invested in the inventory of these items at one time. The management uses a 25 percent annual interest charge to compute the holding cost. The relevant cost and demand parameters are given in the following table. Demand rate Variable cost Setup cost 1 1850 50 100 Item 2 1150 350 150 3 800 85 50 Use the EOQ model to compute the lot sizes that the shop should be producing so that they do not exceed the budget. Three items are produced in a small fabrication shop. The shop management has established the requirement that the shop never has more than $3000 invested in the inventory of these items at one time. The management uses a 25 percent annual interest charge to compute the holding cost. The relevant cost and demand parameters are given in the following table. Demand rate Variable cost Setup cost 1 1850 50 100 Item 2 1150 350 150 3 800 85 50 Use the EOQ model to compute the lot sizes that the shop should be producing so that they do not exceed the budget.

Answer rating: 100% (QA)

The Economic Order Quantity EOQ model is used to minimize the total costs of inventory which include holding costs and ordering costs In this scenario holding costs are computed using the 25 annual in... View the full answer