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A company makes a component. It uses an average of 5000 of these throughout the year. The production rate
for these components is 500 per week and the cost of holding one item for the year is $1.50. The factory is open
for 50 weeks per year. The company has calculated the economic batch quantity as 2000 units.What is the production setup cost per batch?
The answers is $480. But I’m not sure on the working
You need to use the EBQ formula as given in the exam, but working backwards.
We know the following:
EBQ = 2,000
Ch = 1.50
D = 5,000
R = 500 x 50 = 25,000
The missing item is Co, but if you put all the other figures in the formula and then re-arrange you can calculate Co.If you have problems with the algebra then ask again.
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