Question

Question 41: From the information given below about Red Diamond Almond factory, calculate the following:                                                                                                                 

• the optimal order size and total annual inventory cost minimum
• # of production runs and the time between runs
• the length of run (run length)
• inventory level maximum

Red Diamond Almond factory makes special almond butter supplied to local stores. It costs $175 every time the factory makes almond butter to set up the production process. The demand at the local stores for this almond butter is 205lbs per day. The factory can make 350lbs of almond butter per day. Annual cost: It costs $12 annually (365 days) to carry a pound of almond butter in a storage area that is refrigerated.

Answer 1

Given, setup cost, S = $175

Daily demand, d= 205 lbs

Daily production rate, p= 350 lbs

Annual Holding cost per pound, H= $12

Number if working days in a year= 365 days

Annual demand= 205*365= 74825 lbs

Optimal order size=

                          =

                            = 2295.18≈ 2295 lbs

Total minimum annual inventory cost= Annual Holding cost+ annual setup cost

                                       =

                                       =

                                      = $11410.32

Number of production runs= D/Q = 74825/ 2295 =32.6 ≈33

Time between runs= 365/ number of production runs= Number of working days in a year/ number of production runs= 365/33 =11.06≈ 11 days

Length of the run, t= Q/p= 2295/ 350= 6.55 ≈ 7 days

Maximum inventory level= Q(1-(d/p))= 2295[1-(205/350)]= 950.79≈ 951 lbs