Suppose that MW Inc has a production rate of 450000 units pe

Suppose that MW Inc. has a production rate of 450,000 units per year, and a daily demand of 1500 units on each working day (assume 250 working days per year). They estimate that is costs $140 to setup for each production run, and the holding cost percentage is 20% of the unit cost. The product is sold for $50 per unit, and the unit cost is $30.

What is the optimal order quantity?

How many units does the warehouse need to be able to hold?

Solution

As provided in the question,

Daily Demand of 1500 units on each working day

Working days per year = 250

Optimal order quantity = 250 X 1500 = 375000

The company has a production rate of 450000 units per year so the units which the warehouse need to be able to hold are

     450000 - 375000 = 75000