Please help me.. I need only right answers.. Thank you Good View is a manufactur
ID: 352652 • Letter: P
Question
Please help me.. I need only right answers.. Thank you
Good View is a manufacturer of monitors for personal computers.Good View’s newest monitor is X-435 model. The company expects sales of this model to run at the rate of 9,000 per year for a while. The facilities for producing this model are shared with several other models. While these production facilities are devoted to the X-435 model, the production rate is 2,000 monitors per month. The cost each time the facilities are set up for production run for this model is $7,500. The annual cost of holding each of these monitors in inventory is estimated to be $120.
(a) Determine the economic production lot size.
(b) Find the corresponding annual setup cost, annual holding cost and total variable inventory cost per year.
(c) How long each production run last and how frequently should they occur? (Give your answer in month).
(d) What is the maximum inventory level? Why is this less than the production lot size?
Explanation / Answer
D = annual demand rate = 9000
d = monthly demand rate = 9000 / 12 = 750
p = monthly production rate = 2000
S = setup cost per setup = $7,500
H = annual inventory carrying cost per item = $120
(a)
Economic production lot size (Qp*) is given by -
Qp* = (2.D.S/H)1/2 x (p / (p - d))1/2 = SQRT(2*9000*7500/120)*SQRT(2000/(2000-750)) = 1341.64 or 1342 (rounded off)
(b)
Annual setup cost = (D/Qp*) x S = (9000/1342) x $7,500 = $50,298.1
Annual holding cost = H x (Qp* x (p - d)/p) / 2 = $120*(1342*(2000-750)/2000)/2 = $50,325
Total variable inventory cost = $50,298.06 + $50,325 = $100,623.1
(c)
Depletion time for one production lot = Qp* / d = 1342/750 = 1.79 months
So, frequency of production lots = 1.79 months
Length of production run = Qp* / p = 1342 / 2000 = 0.671 month
(d)
Maximum inventory level = Qp* x (p - d)/p = 1342*(2000-750)/2000 = 839.
It is less than the production lot size because the demand rate is there. So, as the parts get produced, they cannot be accumulated as per the rate of production as some amount will be depleted by the demand rate instantaneously. So, the total production lot size never gets the scope to build up inventory as a (1 - d/p) proportion is always depleted.
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