The problem will be solved using EPQ ( Economic Production Quantity ) model. As

Question

The problem will be solved using EPQ ( Economic Production Quantity ) model. As per EPQ model total set up as well as inventory holding cost is minimal.

EPQ = Square root ( 2 XCs x D/ Ch x ( 1 – d/p))

Where ,

Cs = Set up cost In $

D = annual demand = 42000

Ch = Annual unit holding cost = $13 / unit

P = Daily production = 960 units

‘d = daily demand = 168 units

EPQ = 120 units

Hence ,

120 = Square root ( 2 x Cs x 42000/13 x ( 1 – 168/960))

Or, 120 = Square root ( 84,000.Cs/ 13 x 0.825)

Or, 120 = Square root ( 84000.Cs/10.725)

Or, 14400 = 84000.Cs/10.725

Or, Cs = 14400 x 10.725 /84000 = 1.838

Thus Set up cost = $1.838

Since set up labour cost is $20 per hour

Required set up time = $1.838 /20 hour = 1.838 x 60/20 minutes = 5.514 minutes ( 5.51 minutes rounded to 2 decimal places )

THE SET UP TIME THAT SHOULD BE ACHIEVED = 5.51 MINUTES

THE SET UP TIME THAT SHOULD BE ACHIEVED = 5.51 MINUTES

Explanation / Answer

Carol Cagle has a repetitive manufacturing plant producing trailer hitches in Arlington, Texas. The plant has an average inventory turnover of only 12 times per year. He has therefore determined that he will reduce his component lot sizes. He has developed the following data for one component, the safety chain clip: Setup labor cost $20 per hour Annual holding cost $13 per unit Daily production 960 unit/8 hour day Annual demand42,000 (250 days each x daily demand of 168 units) Desired lot size120 units (one hour of production) To obtain the desired lot size, the set-up time that should be achievedminutes (round your response to two decimal places)

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