Question

Arthur Meiners is the production manager of​ Wheel-Rite, a small producer of metal parts.​ Wheel-Rite supplies​ Cal-Tex, a larger assembly​ company, with 10,700wheel bearings each year. This order has been stable for some time. Setup cost for​ Wheel-Rite is ​$39 and holding cost is ​$0.60 per wheel bearing per year.​ Wheel-Rite can produce 520 wheel bearings per day.​ Cal-Tex is a​ just-in-time manufacturer and requires that 48 bearings be shipped to it each business day.

​a) What is the optimum production​ quantity? _____units ​(round your response to the nearest whole​ number).

​b) What is the maximum number of wheel bearings that will be in inventory at​ Wheel-Rite?____units ​(round your response to the nearest whole​ number).

​c) How many production runs of wheel bearings will​ Wheel-Rite have in a​ year?____runs ​(round your response to two decimal​ places).

​d) What is the total setup plus holding cost for​ Wheel-Rite?____​(round your response to two decimal​ places).

Answer 1

Economic Order Quantity is the number of unit that is added to the inventory which minimize the total inventory cost. It maintain a balance between ordering costs and carrying costs.