2.

Economic batch quantity (EBQ)

Case 2
PMG Ltd. Has capacity to manufacture 6,000 Whelks in a week. The Whelks are in demand at a
rate of 4,000 per week.
Set up costs for each production run are $750 and the holding cost of each unit is 2 cents per
week.
Required:
a) What is the EBQ in units?
b) What are the total weekly holding and set up costs associated with inventory if the firm aims
to minimize the costs?

2Co D
EBQ =
D
C H (1 − )
R
Solution:

𝟐×𝟕𝟓𝟎×𝟒,𝟎𝟎𝟎
EBQ=� 𝟒𝟎𝟎𝟎 = 𝟑𝟎, 𝟎𝟎𝟎
𝟎.𝟎𝟐∗�𝟏− �
𝟔𝟎𝟎𝟎

4. Methods of remuneration
Case 4
A company pays its employees using a piecework system. The rates are, as follows:
0-100 units per week $5 per unit
101 – 150 units per week $5.5 per unit
151 – 200 units per week $6 per unit
201+ units per week $6.5 per unit

Required:
If an employee produces 163 units in one week and 470 units (with a constant weekly
production volume) in the following three weeks, what would his pay would be for the four
weeks?

Solution:
First week: rate per hour: $6/unit
• Pay for 1st week: 6 × 163 = 978
Following three weeks:
470 pieces / 3 weeks = 156.67 units/ week  pay rate / unit of $6;
• Pay for the following three weeks:

1
 6 × 470 = 2,820 $
Total pay = 2,820 + 978 = 3,798 $ (for the entire month);

5. Standard labour hours

Case 5
An employee makes 200 units of product X, 350 units of product Y and 300 units of product Z.
The standard time allowed per unit was
X – 4 minutes
Y – 2 minutes
Z – 3 minutes
Required:
What are the standard hours produced by the employee? (in hours)

Solution:
Type of product Standard time/unit No of units produced Standard hours
(min)
X 4 200 =4×200=800
Y 2 350 =2×350=700
z 3 300 =3×300=900
Total standard time (minutes) 2,400
Total standard time (h) 40