The annual demand for a component Z is 2,08,000 units at a steady weekly rate of 4,000 units. An appropriate formula for calculating the economic batch quantity for production of a component which is being used (at a rate of s) and produced (at a rate of r per week) at the same time is

The initial cost of installing the line for producing Z was Rs 6,000 for a maximum production capacity of 8,000 per week. The operating costs at full capacity are Rs 100 per week for labour, Rs 600 per week for material, Rs 300 per week for variable overhead and Rs 250 per week for fixed overhead. The cost of preparing the production order, producing drawings and so on is Rs 40 each time production is required. Storage costs including interest have been calculated as Rs 2 per unit per annum.
Now,

(a) Calculate the most economic quantity that should be produced each time the line is set up.

(b) Advise the management if it now thinks that there is an opportunity to produce a special one-off order for 50,000 Z's for delivery in six months' time. Your answer should consider quantitative and qualitative factors.

Transcribed Image Text:

EBQ = 2AC0 V(1-s/r)ip