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Hello tutor,
For this question, how can we know that the re-supply of inventory is the production rate of the period in the formula of EBQ? At first I thought that the re-supply of inventory is the economic batch quantity, but it turned out to be wrong.
Can you please enlight me? Thank you!
“XYZ company gradually receives its re-supply of inventory at a rate of 10,000 units a week. Other information is available as follows.
Weekly demand 5,000 units
Set-up costs for each production run $125
Weekly cost of holding one unit $0.0025What is the economic production run?”
I do not think that you can have watched my free lectures.
Usually in inventory control questions we assume that when new deliveries arrive, the whole order of inventory arrives at once. However, if we are producing the goods ourselves (rather than ordering from another company) then the order will arrive as it is produced rather than all at once. How quickly we get the entire order depends on the speed of production (i.e. the production rate), which is what changes the formula.
I do explain all this in my lectures.
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