Question

Find the optimum number of batches (to the nearest whole number) of an item that should be produced annually (in order to minimize cost) if 300,000 units are to be made, it costs $2 to store a unit for one year, and it costs $440 to set up the factory to produce each batch.

A. 26 batches

B. 28 batches

C. 18 batches

D. 20 batches

Answer 1

Given ;

Units; 300000

Costs to store a unit for one year; $2

costs to set up the factory to produce each batch; $440

1 Year =365days

Thus the annual cost is ;

(440 *365 ) = 160600

3000000 // (440 *365)

3000000 //160600

=18.67

=18 batches