Problem 7-8 Johnson Plastics makes and sells, among many other things, specialty
ID: 345902 • Letter: P
Question
Problem 7-8
Johnson Plastics makes and sells, among many other things, specialty plastic display cases for retail stores. Johnson’s expected annual demand for the display cases is 2,800 units, and average daily demand is 8 units. The production process is most efficient when 15 units per day are produced at a cost of $135 per unit. Setup cost is $11. Inventory carrying cost at Johnson is determined to be 10 percent annually.
a. What is the best production order quantity? (Round up your answer to the next whole number.)
Production order quantity _____ units
b. How many days is a required production run? (Round your answer to 3 decimal places.)
Number of days _______
Explanation / Answer
Annual Demand= 2,800 units
Set up Cost (S) = $11
Unit Cost (h)= $135
Holding Cost=135*10% =$13.5
Average Daily Demand (d)= 8units.
Production (p) = 15units
So
best production order quantity(Q)= (2DS)/H*(p/p-d)
= (2*2800*11)/13.5*(15/15-8)
= 67.55*1.46
=98.623=99Units
2 Production Run = Q/p= 99/15=6.600 days approximately.
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