Question

Here is the information about an item from a production line: Ordering cost: $2,000

Cost per item: $1,000 Carrying rate: 10% Demand rate in year: 10,000 Demand rate to production rate ratio: 0.2 What is the best production quantity?
A. 1416
B.708
C. 633
D. 2000

Answer 1

The best production quantity from above options is 633.

Step-by-step explanation:

In order to determine the best production quantity, we need to consider the ordering cost, carrying cost, and demand rate. The total cost for each production quantity can be calculated using the following formula: Total Cost = (Ordering Cost * Demand Rate) / Production Rate + (Carrying Rate * Cost per Item * Production Rate)

By calculating the total cost for each production quantity, we can determine the production quantity that results in the lowest cost. Based on the given information, the best production quantity here is 633 (Option C).