How To Calculate The Economic Production Quantity,Maximum Inventory Level and The Total Annual Cost Of Using The EPQ


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Healthy Plants Ltd. (HP) produces its premium plant food in 60-pound bags. Demand for the product is 150,000 pounds per week. HP operates 50 weeks per year and can produce 250,000 pounds per week. The setup cost is $200 and the annual holding cost rate is $0.55 per bag. Currently, HP produces its premium plant food in batches of 1,000,000 pounds.Determine what will happen if HP uses the economic production quantity model to establish the quantity produced each cycle.

1. Calculate the economic production quantity (EPQ) (Round to the nearest integer. Do not round your intermediate computations.)

2. Calculate the maximum inventory level using the EPQ (Round to the nearest integer. Do not round your intermediate computations.)

3. Calculate the total annual cost of using the EPQ.

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