A manufacturer of hospital supplies has a uniform annual demand for 80,000 boxes of bandages. It costs $10 to store one box of bandages for one year and $160 to set up the plant for production. How many times a year should the company produce boxes of bandages in order to minimize the total storage and setup costs?

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andromache andromache · Answer 1 · 2020-08-08T02:48:50+02:00

Answer:

50 times

Explanation:

For the computation of the number of times company should produce a year first we need to determine the EOQ which is shown below:-

[tex]EOQ = \sqrt{\frac{2\times Annual\ demand\times Ordering\ cost\ per\ order}{Holding\ cost} }[/tex]

[tex]= \sqrt{\frac{2\times 80,000\times \$160}{\$10} }[/tex]

= [tex]\sqrt{\frac{25,600,000}{10} }[/tex]

= 1,600

Now,

we will assume a number of times in a year is x, so that the company manufacture bangles

[tex]x = \frac{Annual\ demand}{EOQ}[/tex]

= [tex]\frac{80,000}{1,600}[/tex]

= 50 times

Therefore for computing the number of times the company should produce a year we simply applied the above formula.