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A company manufactures a component for one of its products. It uses 6,000 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. The company can produce the components at the rate of 5,000 per month.
What is the economic batch quantity that should be manufactured each time?ANS IS
2,000 unitsNEED SOLLUTION
Have you watched my lecture on inventory control?
The formula for the EBQ is on the formula sheet.
To use the formula you need to know the set-up cost each time – it is $600.
You need to know the holding cost per unit per annum – this is $2
You need to know the demand per year – this is 6,000
You need to know the rate of production per year – this is 60000 (12 x 5000)
The solution then comes from sticking these figures in the formula.
Please do not ask me simply to answer test questions. Provided you have watched my lectures I will help with whatever problems you have, but do not just say ‘need solution’ !
got it sir… i just can’t understand questions techniques.. i know the topic but just now understand that i have to take rate of production annually that is 60000.. but i was trying with 5000 only 🙁
That is a common trick in the exam, so be careful!
Glad you are now OK with it 🙂
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