Problem I: Economic Order Quantity

A manufacturing company places an annual order of 48 000 units at a purchasing price of $20 per unit. Its carrying cost is 15% (carrying cost=15% of per-unit price) and the order cost is $12 per order.

A. What is the most economical number of units to order? Show calculations! (1 p.)

B. How many orders should be placed in a year? (1 p.)

C. How often should an order be placed? (1 p.) Show calculations!

Problem II: Economic Batch Quantity

Sarah owns and operates a small factory that manufactures plastic bottles which she sells to bottling companies. The following additional information is known:

Annual demand is 1 million bottles spread evenly over the year

Setup cost is $5000 per batch

Holding cost is $3 per annum for each bottle

Maximum production capacity is 2 million bottles per annum (R)

Currently, bottles are manufactured in 10 batches

Find the optimum batch quantity that Sarah should produce to minimize her costs. Show Calculations