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) If it costs $2.00 per unit to store an item for one year and $40.00 setup cost every time you produce a lot, and you use 1,000 units per year, how many lots of what size should be manufactured each year?

Respuesta :

Answer:

200 units

Explanation:

Given that

Carrying cost per unit = $2

Ordering cost or setup cost = $40

Annual demand = $1,000

In this question we use the economic order quantity formula which is shown below:

The computation of the economic order quantity is shown below:

[tex]= \sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}[/tex]

[tex]= \sqrt{\frac{2\times \text{1,000}\times \text{\$40}}{\text{\$2}}}[/tex]

= 200 units

So by considering the economic order quantity we can find the lot size i.e 200 units

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