Question

*Note: 4 of the 5 questions are correct. I am having great trouble figuring out the 4th part of the question. What I have listed below is the problem in its entirety.

Bob's Bumpers has a repetitive manufacturing facility in Kentucky that makes automobile bumpers and other auto body parts. The facility operates 280 days per year and has annual demand of 66,000 bumpers. They can produce up to 425 bumpers each day. It costs $61 to set up the production line to produce bumpers. The cost of each bumper is $137 and annual holding costs are $30 per unit. Setup labor cost is $23 per hour.

What is the optimal size of the production run for bumpers? (Display your answer to the nearest whole number.) Answer: 776

Based on your answer to the previous question, and assuming the manufacturer holds no safety stock, what would be the average inventory for these bumpers? (Display your answer to the nearest whole number.) Answer: 388

Based on your answer two questions back, how many production runs will be required each year to satisfy demand? HINT: As a general rule, whenever calculating a value that is based on previous calculations in Excel, always be sure to use cell references rather than a rounded value as a calculation input. (Display your answer to the nearest whole number.) Answer: 85

Suppose the customer (an auto manufacturer) wants to purchase in lots of 460 and that Bob's Bumpers is able to reduce setup costs to the point where 460 is now the optimal production run quantity. How much will they save in annual holding costs with this new lower production quantity? (Display your answer to two decimal places.) This is the answer I cannot find.

How much will they save in annual setup costs with this new lower production quantity? (Display your answer to two decimal places.) Answer: 2113.06

Thank you.

Answer 1

Part - 4 solution:

With the current production run, the holding cost = Average inventory * annual holding cost

= 388*30 = $11640 (average inventory = 388 from part b)

Now the production run = 460

Average inventory = Q/2 = 460/2 = 230

Holding cost = 230*30 = $6900

Hence decrease in annual holding cost = (11640 – 6900) = $4740

Answer is: $4740

Edit-1:

When not-rounded, Q1 answer comes to be 776.295, which in return gives the holding cost as 11644.43. So the savings in the holding cost = 11644.43 - 6900 = 4744.43.

Answer is: 4744.43 (please check the comments for any clarification)

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