Question

A chemical plant produces sodium bisulfate in 150 kg bags. Demand for this product is 20 tonnes per day. The capacity for producing this product is 55 tonnes per day. Setup cost is $320, and storage and handling costs are $150 per tonne per year. The company operates 220 days a year. (Note: 1 tonne = 1,000 kg).

a. What is the optimal number of bags per production run? (Round your intermediate calculations to 2 decimal places and the final answer to the nearest whole number.)

Optimal number of bags   

b. What would the average inventory level be for this lot size? (Round your intermediate calculations to 2 decimal places and the final answer to the nearest whole number.)

Average inventory    bags

c. Determine the approximate length of a production run, in days. (Round the intermediate calculations and final answer to 2 decimal places.)

Run length    days

d. About how many production runs per year would there be? (Round your intermediate calculations to 2 decimal places and the final answer to 1 decimal place.)

Runs per year   

e. How much could the company save annually in inventory control cost if the setup cost could be reduced to $160 per production run and the optimal production quantity is recalculated and used? (Round the intermediate calculations and final answer to 2 decimal places.)

Annual Savings $

Answer 1

Economic Production Quantity refers to the number of unit that are added to the inventory which can minimize the total inventory cost. It maintain a balance between setup costs and carrying costs.