Question

L.51 Carl's Custom Cans produces small containers which are purchased by candy and snack food producers. The production facility operates 330 days per year and has annual demand of 15,200 units for one of its custom cans. They can produce up to 120 of these cans each day. It costs $26.04 to set up one of their production lines to run this can. (Carl pays $14 per hour for setup labor.) The cost of each can is $3.40 and annual holding costs are $1.10 per can.

What is the optimal size of the production run for this can? (Display your answer to the nearest whole number).
   

Given your answer to the previous question, how many production runs will be required each year in order to meet the annual demand? (Round your answer UP to the next whole number.)
   

Suppose the customer for this custom can wants to purchase in quantities of 900 units. What is the required setup cost to make this order quantity an optimal production run quantity for Carl's Custom Cans? (Display your answer to two decimal places.)
   

Based on your answer to the previous question (reduced setup cost), how long (in minutes) should it take to set up this production line? (Display your answer to the nearest whole number.)
  

Answer 1

1. Demand Rate = 15200/330 = 46.06 = 46 units per day

Optimal Production run size as per EPQ model =

Optimal size of production =

= units = $18.05

= = 1081 units

2. Number of Production runs required = 15200/1081 = 14.06 = 14 runs per year

3. Required setup cost =

Hence,

Required setup cost for 900 units = $ 18.05

4. Time required to setup = Total Setup cost x 60 / Labour cost per hour = 18.05 x 60 / 14 = 77.35 minutes