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A production order quantity problem (E00-p) has a daily demand rate - 10 and a daily production rate -50. The production orde

A production order quantity problem (E00-p) has a daily demand rate = 10 and a daily production rate = 50. The production order quantity (0") for this problem is approximately 627 units 

What is the average inventory on hand (in other words - the inventory for which you are paying Holding Costs on) in this problem? 

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Answer #1

Production order quantity (Q*) = 627 units

Daily demand (d) = 10 units

Daily production (p) = 50 units

Average inventory = (Q*/2) × [1 - (d/p)]

Average inventory = (627/2) × [1 - (10/50)]

Average inventory = 250.8 units

Average inventory = 251 units (rounded off)

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