EBK PRINCIPLES OF OPERATIONS MANAGEMENT
EBK PRINCIPLES OF OPERATIONS MANAGEMENT
11th Edition
ISBN: 9780135175644
Author: Munson
Publisher: VST
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Chapter 12, Problem 18P

a)

Summary Introduction

To calculate: The economic production quantity (EPQ).

Introduction:

Economic production quantity (EPQ):

The economic production quantity is used to determine the amount a company or a retail outlet should purchase at every order so as to minimize the associated total inventory costs. It is done by balancing the holding cost and the ordering cost.

a)

Expert Solution
Check Mark

Answer to Problem 18P

The economic production quantity (EPQ) is 671 units.

Explanation of Solution

Given information:

Annual Demand (D) = 12,500 units

Number of working days (N) = 250 / year

Holding cost (H) = $2 / unit / year

Ordering cost (S) = 30 / order

Daily production (p) = 300 / day

Daily demand(d)=Annual demandNumber of days=12,500250=50 days

Formula to calculate EPQ:

EPQ=2×D×SH[1-dp]

Calculation of EPQ:

EPQ=2×12,500×302[150300]=750,0002[250300]=750,0002×0.833

=750,0001.666=450,180.07=670.95=671 units

Hence, the economic production quantity (EPQ) is 671 units.

b)

Summary Introduction

To calculate: The number of production runs per year.

Introduction:

Production runs:

The production run is the development of similar or associated goods by utilizing a particular approach or processes.

b)

Expert Solution
Check Mark

Answer to Problem 18P

The number of production runs per yearis 18.63.

Explanation of Solution

Given information:

Annual Demand (D) = 12,500 units

Number of working days (N) = 250 / year

Holding cost (H) = $2 / unit / year

Ordering cost (S) = 30 / order

Daily production (p) = 300 / day

Daily demand(d)=Annual demandNumber of days=12,500250=50 days

Formula to calculate number of production runs:

Number of production runs=DEPQ

Calculation of number of production runs:

Number of production runs=12,500671=18.628=18.63

Hence, the number of production runs per year is 18.63.

c)

Summary Introduction

To calculate: The maximum inventory level.

Introduction:

Maximum inventory level:

The maximum inventory level is the level of inventory in a firm which should not be exceeded at any circumstances. It is to ensure that the cost of capital is not increased.

c)

Expert Solution
Check Mark

Answer to Problem 18P

The maximum inventory level is 559 units.

Explanation of Solution

Given information:

Annual Demand (D) = 12,500 units

Number of working days (N) = 250 / year

Holding cost (H) = $2 / unit / year

Ordering cost (S) = 30 / order

Daily production (p) = 300 / day

Daily demand(d)=Annual demandNumber of days=12,500250=50 days

Formula to calculate maximum inventory level:

Maximum inventory level=EPQ×(1dp)

Calculation of maximum inventory level:

Maximum inventory level=671×(150300)=671×250300=559.16=559 units

Hence, the maximum inventory level is 559 units.

d)

Summary Introduction

To determine: The percentage of time the facility will be producing components.

d)

Expert Solution
Check Mark

Answer to Problem 18P

The percentage of time the facility will be producing componentsis 16.7%.

Explanation of Solution

Given information:

Annual Demand (D) = 12,500 units

Number of working days (N) = 250 / year

Holding cost (H) = $2 / unit / year

Ordering cost (S) = 30 / order

Daily production (p) = 300 / day

Daily demand(d)=Annual demandNumber of days=12,500250=50 days

Formula to calculate days of demand:

Days of demand=NNumber of production runs

Formula to calculate days of production:

Days in production=EPQp

Calculation of days of demand satisfied by each production run:

Days of demand=NNumber of production runs=25018.63=13.419=13.42 days

Calculation of days in production for each order:

Days in production=EPQp=671300=2.236=2.24 days

Calculation of percent time of production:

The percentage of the time the facility is producing components is calculated by dividing the days in production by the days of demand.

Percent time of production=Days in productionDays of demand×100=2.2413.42×100=16.69=16.7%

Hence, the percentage of time the facility will be producing components is 16.7%.

e)

Summary Introduction

To determine: The annual cost of ordering and holding inventory.

e)

Expert Solution
Check Mark

Answer to Problem 18P

The annual cost of ordering and holding inventory is $1,117.90

Explanation of Solution

Given information:

Annual Demand (D) = 12,500 units

Number of working days (N) = 250 / year

Holding cost (H) = $2 / unit / year

Ordering cost (S) = 30 / order

Daily production (p) = 300 / day

Daily demand(d)=Annual demandNumber of days=12,500250=50 days

Formula to calculate the annual cost of ordering and holding inventory:

Annual cost=(Number of production runs×S)+(Maximum inventory level2×H)

Calculation of annual cost of ordering and holding inventory:

Annual cost=(18.63×30)+(5592×2)=558.9+559=$1,117.90

Hence, the annual cost of ordering and holding inventory is $1,117.90.

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Chapter 12 Solutions

EBK PRINCIPLES OF OPERATIONS MANAGEMENT

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