A toy manufacturer estimates the demand for a game to be 2000 per year. Each game costs $5 to manufacture, plus setup costs of $500 for each production run. If a game can be stored for a year for a cost of $2, how many should be manufactured at a time and how many production runs should there be to minimize costs

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Business

Sandy

30 March, 19:20

A toy manufacturer estimates the demand for a game to be 2000 per year. Each game costs $5 to manufacture, plus setup costs of $500 for each production run. If a game can be stored for a year for a cost of $2, how many should be manufactured at a time and how many production runs should there be to minimize costs

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Lisa · Answer 1

Economic production run = 316. 2 units

Production run t minimize cost = 6.32 runs

Explanation:

Economic batch quantity (EBQ) is also known as economic production run, It is the optimum production run that a manufacturer should operate to minize set up cost and carrying cost.

Carrying cost i the cost of keeping inventor while set up cost is cost of getting machines ready for production

It is calculated as follows:

√2 * Co * D / Ch

Where, Co - 500, D - 2000, Ch - 2

= √ (2 * 500 * 2000/2)

= 316. 2 units

Units to be manufactured at a time 316. units

Production run t minimize cost

= annual demand / economic run

=2000/316.

=6.32 runs

Economic production run = 316. 2 units

Production run t minimize cost = 6.32 runs