Radovilsky Manufacturing Company, in Hayward. California. makes flashing lights
ID: 331111 • Letter: R
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 11,500 flashing lights per year and has the capability of producing 95 per day. Setting up the light production costs $51. The cost of each light is $1.05. The holding cost is $0.05 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 cot per year? d) What is the total cost per year, including the cost of the lights?
Explanation / Answer
Given -
Number of days of operation = 300 days/year
Annual demand D = 11500
Demand Rate d = 11500/300 = 38.33
Production Rate p = 95/day
Setup cost S = 51 $
Cost of light C = 1.05 $
Holding cost H = 0.05 $/light/year
a) EPQ (Economic Production Quantity) = SQRT((2*D*S/H)*(p/(p-d)) = SQRT((2*11500*51/0.05)*(95/(95-38.33)
EPQ = 6272
b) Average Holding Cost = (Q/2)*(1-d/p)*H = (6272/2)*(1-38.33/95)*0.05 = 94 $
c) Average Setup Cost = (D/Q)*S = (11500/6272)*51 = 94 $
d) Total cost per year = Cost of lights+Holding cost+Setup cost = (11500*1.05)+94+94 = 12263 $
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