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 11,600 flashing lights per year and has the capability of producing 105 per day. Setting up the light production costs $51. The cost of each light is $1.00. The holding cost is $0.10 per light per year. a) What is the optimal size of the production run? b) What is the average holding cost per year? c) What is the average setup cost per year? d) What is the total cost per year, including the cost of the lights?

Explanation / Answer

a) Number of days required to produce 11,600 lights are = 11600/105 = 110.48 days (approx)

But here the company operates its production facility 300 days.

Therefore the optimal size of production run = 11,600/300 = 38.66 lights per day

b) Average Holding cost per year = 11,600 lights x $ 0.10 per light per year = $1,160

c) Average setup Cost = $51 per year

d) Setup cost = $51,

Holding cost = $1,160,

Cost of light = 11,600 lights x $1 each light = $11,600

Total cost per year = $(51+1160+11600) = $12811

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