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One large bakery still receives flour in 25-pound bags from their own company's warehouse. They use an average of 5500 bags a year. The production step that uses these bags use 35 bags per day while the usage is 16 bags per day. It costs $12.00 to configure the machines for each run. Annual carrying costs are $7.50 per bag. What will be their average number of bags on hand if they request the EPQ bags in each order

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hyderali230

Answer:

48.87 bags

Explanation:

First, we need to calculate the EPQ as follow

EPQ = [tex]\sqrt{\frac{2 D S }{H(1-d/p)}}[/tex]

Where

D = Annual Demand = 5500

S = Setup cost = $12

H = Carrying cost = $7.5

d = Daily usage = 16

p = Daily production = 35

Placing value sinthe formula

EPQ = [tex]\sqrt{\frac{2 X 5500 X 12 }{7.5(1-16/35)}}[/tex]

EPQ = [tex]\sqrt{\frac{132000 }{4.07142857}}[/tex]

EPQ = [tex]\sqrt{32421.05}[/tex]

EPQ = 180.06

Now Calculate the average number of bags in hand as follow

Average Number of Bags = [tex]\frac{EPQ}{2} X ( 1 - d/p )\\[/tex]

Placing values in the formula

Average Number of Bags = [tex]\frac{180.06}{2} X ( 1 - 16/35 )\\[/tex]

Average Number of Bags = 48.87

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