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A company manufactures for one of its products. It used 6000 of these components evenly throughout the year. Each component costs $20 to manufacture. In addition there is a cost of $600 to set up the machines each time a batch of these components is manufactured. The holding cost per unit is $2 per year. the company can produce the units at the rate of 5000 per month. What is the economic batch quantity that should be manufactured each time?
the square root of 2*6000*20/ 1-[6000/5000]
240000/-0.2= -1200000…..
i think im going wrong already, although i used the economic batch quantity formular.
Correct me pleaseThe rate of production is 5000 a month – you should have used the rate per year which is 12 x 5000 = 60,000!
Also, on the bottom of the formula you should include the holding cost of $2 which you have missed out.
The demand is 6000, the setup cost per batch is 600.
So the top of the equation is 2 x 6000 x 600 = 7200000The holding cost is $2, the rate of production is 60000 a year.
So the bottom of the equation is 2 (1 – 6000/60000) = 1.8So the EBQ is the square root of 7200000/1.8 = 2,000
(I have no idea where 365 came from)
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