A manufacturer of hospital supplies has a uniform annual demand for 320,000 boxes of bandages. It costs $10 to store one box of bandages for one year and $ 160 to set up the plant for production. How many times a year should the company produce boxes of bandages in order to minimize the total storage and setup costs?

Question

Business

Ulises

21 June, 05:19

A manufacturer of hospital supplies has a uniform annual demand for 320,000 boxes of bandages. It costs $10 to store one box of bandages for one year and $ 160 to set up the plant for production. How many times a year should the company produce boxes of bandages in order to minimize the total storage and setup costs?

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Answers (1)

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Sidney Donaldson · Answer 1

Number of times for production = 10 times

Explanation:

Economic batch quantity (EBQ) is also known as economic production run, It is the optimum production run that a manufacturer should operate to minize set up cost and carrying cost.

Carrying cost is the cost of keeping inventory while set up cost is cost of getting machines ready for production

The number of times the company should produce =

Annual demand / the economic production run (EBQ)

It is calculated as follows:

Economic batch quantity = √2 * Co * D / Ch

Where,

D - annual demand - 320,000,

Ch - holding cost per unit per annum - $10

Co - set up cost - $160,

= √ (2 * 160 * 320000/10)

= 3200

Number of times for production

= 320,000/3,200

= 10 times