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I am working from a BPP text book and using Opentuition notes/ lectures which are fantastic! Thank you!
I am a bit perplexed about an answer in the BPP textbook, however, and wondered if you could help. The question in a nutshell is:
Company rate of production is 4000 units a week, Demand for component is 2000 units a week, Set-up costs for each production run are $50, and cost of holding one unit of inventory is $0.001 a week.
Calculate the Economic Production Run
I have calculated the EBQ as:
(sq rt) 2x50x2000/0.001(1-2000/4000)
200,000/5 = 40,000
(sq rt) 40,000 = 200
I believe this to be correct, however, the answer given in the book is “20,000 units (giving an inventory cycle of 10 weeks)”. I do not understand where the 20,000 comes from or what I am to do in order to calculate the economic production run once I have the EBQ with no further information.
Could you please help to explain this answer? Many thanks!!
Your arithmetic is wrong.
On the bottom of the question, 0.001(1-2000/4000) = 0.001 x 0.5 = 0.0005 (you have written 5).
sq root of (2 x 50 x 2000 / 0.0005) = 20,000