Rick Wing has a repetitive manufacturing plant producing automobile steering whe
ID: 367013 • Letter: R
Question
Rick Wing has a repetitive manufacturing plant producing automobile steering wheels. Use the following data to prepare for a reduced lot size. The firm uses a work year of 290 days Setup labor cost Annual holding cost Daily production (8 hours) Annual demand for steering wheels 30,450 (290 days x daily demand of 105 units) Desired lot size (2 hours of production) 260 units $4000 per hour $15 per unit 1,040 units/day a)Setup cost-(round your respons e to two decrnal places) b) Setup tme=[] minutes (round your response to two decimal places) nter your answer in each of the answer boxes F10 FS F6 F7 BACK SPALE 5 0Explanation / Answer
To be calculated:
a) Setup cost
b) Setup time
Given Information:
Annual Demand = 30450 units,
Daily demand = 105 units
Total work days in a year = 290 days
Desired lot size, Q = 260 units
Setup labour cost = $40 per hour
Annual holding cost = $15 per unit
Daily production (8 hours) = 1040 units per day
Solution:
(Part A)
Setup cost is calculated as:
S = [(Q^2) x (H) x (1- d/p)] / 2D
The above formula is derived from product order quantity (Q*) formula, where,
Q = Lot size,
H = holding cost
d = daily demand
p = daily production
D = Annual demand
Therefore,
S = [(260^2) x (15) x (1 - 105/1040)] / (2 x 30450)
S = [(1014000) x (1 - 0.101)] / (60900)
S = (911586) / (60900)
Setup Cost, S = 14.97 = $15
Total Setup Cost = Labour cost + Setup cost
Total Setup Cost = $40 + $15 = $55
Total Setup Cost is $55
(Part B)
Setup time is calculated as:
Setup time = Total Working days per year / Expected number of orders in a lot
Setup time = 290 / 260 = 1.11 minutes
Setup time for each lot is 1.11 minutes
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