Question: Problem # 2

A chemical firm produces sodium bisulfate in 100-kg bags. Demand for this product is 20 tonnes per day. The capacity for producing the product is 40 tonnes per day. Setup costs $100, and holding cost is $50 per tonne a year. The firm operates 250 days a year. (Note: 1 tonne = 1,000 kg)

a) How many bags per run are optimal?

b) What would the average inventory be for this lot size? (provide answer in “bags”)

c) Determine the approximate length of a production run, in days.

d) About how many runs per year would there be?

e) How much could the company save annually if the setup cost could be reduced to $25 per run?