Wicomico 3DeLight makes 3D printers for entrepreneurs. The business is open 275
ID: 363381 • Letter: W
Question
Wicomico 3DeLight makes 3D printers for entrepreneurs. The business is open 275 days per year. It has been selling 9000 3D printers per year and can produce 100 per working day. Getting a production run started costs $175, and the holding cost for a 3D printer is $1500/printer/year. The manufacturing cost of each 3D printer is $500. Part a - What is the size of the optimal production run for the company? Part b – what is Wicomico 3DeLight’s total costs for the year, including the cost of the 3D printers?
*Which method should be used: POQ or EOQ, and please show work.
Explanation / Answer
a. For minimum cost, we have to calculate Optimum Order quantity per order which is EOQ
Formula of economic order quantity (EOQ)
EOQ = (2 * avg. Demand * setup cost/ carrying cost)
Where average annual demand, D = 9000 3D printers
Production run started costs or Set-up cost, S= $175
Annual holding cost, H = $1500/printer/year
Working days = 275 days per year
Therefore
EOQ = (2 * 9,000 *$175 / $1,500)
= (210) = 45.83 or 46 printers
The size of the optimal production run for the company is 46 printers
b. Total cost of the year = Total ordering cost + Total carrying cost + Total manufacturing cost
= (D/Q)* S + (H*Q)/2 + manufacturing cost per unit * annual demand
Where Q = EOQ = 46
= (9000/46)*175 + ($1,500*46)/2 + $500 * 9,000
= $34,369.32 + $34,369.32 + $4,500,000
= $4,568,738.64
Economic order quantity is the most efficient therefore for optimal production run, the company should follow EOQ method.
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