Question

THE APPLE VALLEY COMPANY MAKES APPLE BUTTER TO SUPPLY TO LOCAL STREET VENDORS IN MONTERREY, CALIFORNIA. APPLE VALLEY CAN MAKE 330 POUNDS OF APPLE BUTTER PER DAY, AND DEMAND FROM THE STREET VENDORS IS 190 POUNDS PER DAY. EACH TIME APPLE VALLEY MAKES APPLE BUTTER, IT COSTS 176 TO SET UP THE PRODUCTION PROCESS. THE ANNUAL COST OF CARRYING A POUND OF APPLES IN A REFRIGERATED STORAGE AREA IS $6.50. DETERMINE THE OPTIMAL ORDER SIZE?

Answer 1

The optimal order size is calculated as follows

$Q = \sqrt{2*C_{0}*D / C_{h}(P-D)/P}$

$Q = \sqrt{2*176*190*330 / 6.50(330-190)/330}$

Q= 2697.40 units

Or Optimal order size $\approx$ 2697 units.