A sausage factory can produce European wieners at a rate of

A sausage factory can produce European wieners at a rate of 500 kg per day. It supplies wieners to local stores and restaurants at a steady rete of 100 kg per day. The cost to prepare the equipment for producing European wieners is $12. Annual holding cost is $4 per kg of wieners. The factory operates 300 days a year.

Calculate:

a) The optimal production run quantity.

b) The number of production runs per year.

c) The length (in days) of a production run.

Solution

Production capacity

p

500

kg/day

Consumption

c

100

kg/day

Set up cost

s

12

$

Hold cost

h

4

$/kg/year

No.of working days

w

300

days/year

Demand per year

D

c X w

30000 Kg

1

Economic Production Quantity

EPQ

Sqrt ((2 X s X D X p)/((p-c) X h))

474.3

2

Number of production runs

No. of times production has to make EPQ in 1 year so as to supply for the demand

D/EPQ

63.25 ~ 64 times

3

Runtime of production

500Kg can be produced in 1 days, so EPQ can be produced in roughly 0.95 days

EPQ/p

0.95 days