Problem 2

A chemical plant produces sodium bisulfate in 100 kg bags. Demand for this product is 20 tonnes per day. The capacity for producing this product is 50 tonnes per day. The setup cost is $400, and storage and handling costs are $200 per tonne per year. The company operates 200 days a year. (Note: 1 tonne = 1,000 kg).

1. What is the optimal number of bags per production run?
2. What would the average inventory level be for this lot size?
3. Determine the approximate length of a production run, in days.
4. About how many productions runs per year would there be?
5. How much could the company save annually in inventory control cost if the setup cost could be reduced to $200 per production run and the optimal production quantity is recalculated and used?