Liberty Celebrations, Inc., manufactures a line of flags. The annual demand for

Question

Liberty Celebrations, Inc., manufactures a line of flags. The annual demand for its flag display is estimated to be 100,000 units. The annual cost of carrying one unit in inventory is $1.60, and the cost to initiate a production run is $80. There are no flag displays on hand but Liberty had scheduled 70 equal production runs of the display sets for the coming year, the first of which is to be run immediately. Liberty Celebrations has 250 business days per year. Assume that sales occur uniformly throughout the year and that production is instantaneous. If Liberty Celebrations does not maintain a safety stock, the estimated total carrying cost for the flag displays for the coming year is : $1,800. $2,000. $1,600. $5,600.

Explanation / Answer

1.If Liberty Celebrations does not maintain a safety stock, the estimated total carrying cost for the flag displays for the coming year is 100000/70 = 1428 units per run Average inventory = 1428 /2 = 714 x1.6 =$1142 will be the carrying cost 2.The estimated total set-up cost for the flag displays for the coming year is 70 x 50 = $3500 3.If Liberty Celebrations were to schedule 30 equal production runs of the flag display for the coming year, instead of 70 equal runs, the sum of carrying costs and set-up costs for the coming year would increase (decrease) by 100000/30 = 3333/2 = 1667 x 1.6 =$2666+ 30*50 = 1500 = $4166 for 30 flags per production run Difference will be = 4333-4166 = 167 decrease in total cost 4.The number of production runs per year of the flag displays that would minimize the sum of carrying costs and set-up costs for the coming year is (2*100000*50/1.6)^0.5 = 2500 flags per production run, it means there should be total 100000/2500 = 40 production run. 5.A safety stock of a 3-day supply of flag displays would increase Liberty Celebration’s planned average inventory in units by 100000/250 x 3 = 1200 flags. Feel free to revert for any further clarification Cheers PK!

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.