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A manufacturing company sells its products directly to customers and operates 5 days a week, 52 weeks a year. The production department of this company can produce at the rate of 60 units per day. The setup cost for a production run is $ 125.00. The cost of holding is $ 4.00 per unit per year. The demand for the item is continuous and constant and is 3,900 units per year. (Note: The demand occurs only when the company is operating, that is, 5 days a week for 52 weeks). Find the optimum number of units to be produced in one batch.

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TomShelby

Answer:

Optimum number per batch 494

Explanation:

EOQ minimize the cost for both, setup and holding.

[tex]Q_{opt} = \sqrt{\frac{2DS}{H}}[/tex]

How to Remember:

Demand per year and order cost goes in the dividend.

Holding cost goes in the divisor.

demand 3,900

setup cost 125

holding 4

[tex]Q_{opt} = \sqrt{\frac{2\times 3,900 \: times 125}{4}}[/tex]

493.71 = 494

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