Answer to Question #172457 in Management for jayant

Question

Company A wants to know what production cost its major competitor, company B, has assigned to product item p_(7.) After a bit of investigation, company A has collected the following data about company B’s production of item p_(7.)

Production lot size = 2600 units

Set-up cost = Rs. 135/-

Annual demand = 30,000 units

Daily demand = 100 units

Production rate = 200 units per day

Inventory holding costs = 28% of the average value per year

Company A has further learnt that company B produces according to ‘economic lot size’ model.

What is the company B’s cost of producing product item p_7?

Answer 1

Company ( B)

Production lot size = 2600 units

Set-up cost = Rs. 135/-

Annual demand = 30,000 units

Daily demand = 100 units

Production rate = 200 units per day

Inventory holding costs = 28% of the average value per year

Therefore :

28% of 30000

( 28/100)(30000)= 4800 units

30000+ 48000= 38400units