b) What is the average holding cost per year? c) What is the average setup cost
ID: 346828 • Letter: B
Question
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?
Score: 0 of 2 pts 17 of 28 (1 complete) HW Score: 2.67%, 1.33 of 50 pts Problem 12.19 Question Help * 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 12,400 flashing lights per year and has the capability of producing 100 per day. Setting up the light production costs $49. The cost of each light is $1.00. The holding cost is $0.05 per light per year a) What is the optimal size of the production run?units (round your response to the nearest whole number).Explanation / Answer
To be calculated:
(a) Optimal production quantity
(b) Average holding cost per year
(c) Average setup cost per year
(d) Total cost per year
Given values:
Number of working days = 300
Annual demand, D = 12,400
Daily demand, d = 12400 / 300 = 41.33
Daily production, p = 100
Setup costs, S = $49
Cost of light, C = $1.00
Holding cost, H = $0.05
Solution:
(a) Economic or Optimal production quantity (EPQ) is calculated as;
EPQ = 2DS / H (1 - d/p)
EPQ = 2 x 12400 x 49 / 0.05*(1 - 0.413)
EPQ = 1215200 / 0.02935
EPQ = 41403747.87
EPQ = 6434.57
Optimal size of the production run = 6435 units
(b) Average holding cost per year is calculated as;
Average holding cost = Q/2 x H x (1 - d/p)
Average holding cost = 6435/2 x 0.05 x (1 - 0.413)
Average holding cost = $94.43 per year
(c) Average setup cost per year is calculated as;
Average setup cost = D/Q x S
Average setup cost = $94.42 per year
(d) Total cost per year is calculated as;
Total cost = Cost of lights + Average holding cost + Average setup cost
Total cost = (12,400 x $1) + $94.43 + $94.42
Total cost = $12,588.85 per year
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