Louisiana Specialty Foods can produce its famous meat pies in its factory at a production rate of 1650 cases each per day. The firm distributes the pies to regional stores and restaurants whose demand is a steady demand rate of 250 cases per day. The cost of setup, cleanup, idle time in transition from other products to pies is $320. Annual holding costs are $11.50 per case. Assume 250 days per year. What is the economic production quantity?

economic production quantity= 2024.6 units

Explanation:

The optimal production run is the economic batch units that minimizes the balance of set-up cost and holding cost. It can be determined by adjusting the economic order quantity (EOQ) model for gradual replenishment ,

EBQ = √(2× Co× D)/Ch(1-D/R)

EBQ- Economic /optimal production run

Co- set-up cost per run

Ch- holding cost per unit per annum

D- Annual Supply- 9800× 280

Production rate per day-5000

Optimal production run

=  √(2× 320× 265×250)/11.50×(1-250×250/1650 ×250)

= 2024.6 units