Healthy Plants Ltd. (HP) produces its premium plant food in 50-pound bags. Demand for the product is 100,000 pounds per week. HP operates 50 weeks per year and can produce 250,000 pounds per week. The setup cost is $200, and the annual holding cost rate is $0.55 per bag. Currently, HP produces its premium plant food in batches of 1,000,000 pounds. Using the data provided in Problem 23, determine what will happen if HP uses the economic production quantity model to establish the quantity produced each cycle.

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Parrain Parrain · Answer 1 · 2021-11-07T05:35:19+01:00

Based on the weekly demand, production capacity and holding cost, the EPQ must be 550,482.88 pounds or 11,009.66 bags.

The Economic Production Quantity can be found by the formula:

= √( ( 2 x Annual demand x Setup cost) / ( Annual holding cost per pound x ( 1 - Demand rate per week / Production rate) ) ) )

Annual demand = Demand per week x Number of weeks in HP year)

= 100,000 x 50

= 5,000,000

Annual holding cost per pound = Cost per bag / Number of pounds in bag

= 0.55 / 50 pounds

= $0.011 per pound

Economic Production Quantity = √( ( 2 x 5,000,000 x 200) / ( 0.011 x ( 1 - 100,000 / 250,000) ) ) )

= 550,481.88 pounds

In bags this is:

= 550,481.88 / 50 pounds per bag

= 11,009.66 bags

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The question is:

Calculate the economic production quantity (EPQ) in pounds and bags