Question

Filter systems produces air filters for domestic and foreign cars. One filter is supplied on an exclusive contract at a constant 2,135 units per year. Filter systems can produce this filter at a rate of 50 per hour. Setup time to change the settings on the equipment is 2.8 hours. Worker time (including overhead) is charged at the rate of $55 per hour, and plant idle time during setups is estimated to cost the firm $100 per hour in lost profit. Filter systems established a 28.4 percent annual interest charge for determining holding cost. Each filter costs the company 2.68 to produce; they are sold for $5.50 each to oil changers. How many of these filters should Filter Systems produce in each production run to minimize annual holding and setup costs? Assume 6-hour days, 20 working days per month, and 12 months per year for your calculations.

Answer 1

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