Question

Race One Motors is an Indonesian car manufacturer. At its largest manufacturing​ facility, in​ Jakarta, the company produces subcomponents at a rate of 305 per​ day, and it uses these subcomponents at a rate of 12,500 per year​ (of 250 working​ days). Holding costs are $2 per item per​ year, and ordering costs are $29 per order.

a) What is the economic production quantity?

b) How many production runs per year will be made?

c) What will be the maximum inventory level?

d) What percentage of time will the facility be producing components?

e) What is the annual cost of ordering and holding inventory?

Answer 1

Economic Production Quantity refers to the number of unit the company should add to the inventory and the production is made to minimize the total inventory cost. It maintain a balance between setup costs and carrying costs.