Rolf Steps is the production manager for a local manufacturing firm. This company produces staplers and other items. The annual demand for a particular stapler is 1,600 units. The holding cost is $2 per unit per year. The cost of setting up the production line is $25. There are 200 working days per year. The production rate for this product is 80 per day. If Rolf decided to produce 200 units each time he started production of the stapler, what would his maximum inventory level be

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Business

Libby Simmons

16 May, 08:15

Rolf Steps is the production manager for a local manufacturing firm. This company produces staplers and other items. The annual demand for a particular stapler is 1,600 units. The holding cost is $2 per unit per year. The cost of setting up the production line is $25. There are 200 working days per year. The production rate for this product is 80 per day. If Rolf decided to produce 200 units each time he started production of the stapler, what would his maximum inventory level be

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Giancarlo Farrell · Answer 1

His maximum inventory level would be 180 units

Explanation:

According to the given data we have the following:

daily demand rate, d=1,600/200=8 units;

daily production rate p=80 units;

C0=25 dollar

Cc=2 dollar

Therefore, Qopt=√2*25*1,600 / (2 (1-8/80))

Qopt=210.82

But here Rolf decide to produce 200 units each time he started production, hence fix Q=200

Therefore, Maximum inventory level=200 * (1-8/80) = 200*0.9

Maximum inventory level=180 units

His maximum inventory level would be 180 units