A Production Manager Uses the Economic Lot Size Approach to Determine

question 40

Essay

A production manager uses the economic lot size approach to determine the batch size for a product with an annual demand of 20,000 units per year. The setup cost for each batch is $50 and once the setup is complete, the product may be produced at the rate of 800 units per day. There is a holding cost of $2 per unit per year and the plant operates on a 250-day production year. If the machine used to produce this product is needed for another item and it takes one day to set up regardless of product, how many production days are available for production of the new item?

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Definitions:

Operating Expenses

Costs associated with the day-to-day functions of a business not directly tied to producing a product or service.

Sales

The total revenue earned from goods or services sold by a business within a specified period.

Accounts Receivable

Amounts owed to a business by its customers for goods or services delivered on credit.

Balance

The difference between total debits and credits in an account, or the remaining amount of money or value.