Question

In: Operations Management

ABC Manufacturing produces a product for which the monthly demand is 900 units. Production averages 100...

ABC Manufacturing produces a product for which the monthly demand is 900 units. Production averages 100 units per day. Holding costs are $2.00 per unit per year, and setup cost is $200.00. the company operates 240 days per year

a. If the company wishes to produce this product in economic batches, what size batch should be used?

b. What is the maximum inventory level?          

c. What is the average inventory?            

d. How many order cycles are there per year?          

e. What are the total cost of managing the inventory? $      

Solutions

Expert Solution

ANNUAL DEMAND = 10800

SETUP COST = 200

HOLDING COST = 2

DAILY PRODUCTION = 100

DAILY USAGE = DAILY USAGE = 10800 / 240 = 45

@# ANSWER #@

EPQ = SQRT(2 * DEMAND * SETUP COST / HOLDING COST) * SQRT(DAILY PRODUCTION / DAILY PRODUCTION - DAILY USAGE)

EPQ = SQRT(2 * 10800 * 200 / 2) * SQRT(100 / 100 - 45) = 1982

MAXIMU M INVENTORY = (Q / DAILY PRODUCTION) * (DAILY PRODUCTION - DAILY USAGE)

(1982 / 100) * (100 - 45) = 1090

AVERAGE INVENTORY = MAXIMUM INVENTORY / 2

1090 / 2 = 545

ORDER CYCLES = Q / DAILY USAGE

1982 / 45 = 44.04

TOTAL COST OF MANAGING = (MAXIMUM INVENTORY / 2 * HOLDING COST) + (DEMAND / Q * SETUP COST)

((1090 / 2) * 2 + ((10800 / 1982) * 200) = 2179.81 OR 2180

keosha answered 2 years ago
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