Radovilsky Manufacturing Company, in Hayward, California, makes flashing lights

Question

Radovilsky Manufacturing Company, in Hayward, California, makes flashing lights for toys. The company operates its production facility 300 days per year. It has orders for about 11,800 flashing lights per year and has the capability of producing 95 per day. Setting up the light production cast $49. The cost of each light is $1.05. The holding cost is $0.10 per light per year. What is the optimal size of the production run? What is the average holding cost per year? What is the average setup cost per year? What is the total cost per year, including the cost of the lights?

Explanation / Answer

Optimal size of production run= square root { (2*11800*49)/( 0.1*(1-11800/28500) ) } =4442.4 =4443 units Average holding cost per year= {4443*(1-11800/28500)*0.1}/2 =130.17 = $ 131. average set up cost per year = $130.13 total cost per year=$12390 + $ 131+ $ 130.13 = $12650.

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