Question

Race One Motors is an Indonesian car manufacturer. At its largest manufacturing facility, in Jakarta, the company produces subcomponents at a rate of 305 per day, and it uses these subcomponents at a rate of 12,200 per year (of 250 working days). Holding costs are $33 per item per year, and ordering costs are $29 per order.

a) What is the economic production quantity? (round your response to two decimal? places).

b) How many production runs per year will be made? (round your response to two decimal? places).

c) What will be the maximum inventory level? (round your response to two decimal? places).

d) What percentage of time will the facility be producing components? (round your response to two decimal? places).

e) What is the annual cost of ordering and holding inventory? (round your response to two decimal? places).

Help, please!

Answer 1

Given,

Demand (D) = 12200 units per year

p= 305 units/day

d= 12200/250 = 48.8 units/day

N=250 days/year

Ordering cost (S)=$29

Holding Cost (H)= $33

a) EPQ (Q*) = (2DS/H(1-d/p))^0.5 = ((2*12200*29)/33(1-48.8/305))^0.5 = 159.77 units

b) Production runs/year (T) = D/Q* = 12200/159.77 = 76.36 runs = 77 runs

c) Maximum inventory level (I) = (p-d)*t

t=Q*/p = 159.77/305= 0.52

I = (p-d)*t = (305-48.8) * 0.52 = 133.22 units

d) Percentage of production time = T*t/N = (76.36*0.52 / 250) * 100

= 15.88 %

e) Annual Setup cost = (DS/Q*) = (12200*29)/159.77 = $ 2214.43

Annual Holding Cost = H(Q*/2)(1-d/p) = 33 * 79.885 * 0.84 = $2214.41