Demand rate, d = 1000 units per year Production rate, p = 4000 units per year Ca
ID: 374324 • Letter: D
Question
Demand rate, d = 1000 units per year
Production rate, p = 4000 units per year
Carrying cost, H = 10*40% = 4
Current System
Setup cost, S = 150
Batch size, as per EPQ model = (2dS/(H*(1-d/p) = (2*1000*150/(4*(1-1000/4000))) = 316
Batch throughput time = (316/1000)*2400 = 759 hours
Number of setups =1000/316 = 3.16
Total relevant inventory cost = (d/Q)*S + (Q/2)*H*(1-d/p) = (1000/316)*150 + (316/2)*4*(1-1000/4000) = $ 949
30% reduction in setup cost
Setup cost, S = 150*(1-30%) = 105
Batch size, as per EPQ model = (2dS/(H*(1-d/p) = (2*1000*105/(4*(1-1000/4000))) = 265
Batch throughput time = (265/1000)*2400 = 635 hours
Number of setups =1000/265 = 3.8
Total relevant inventory cost = (d/Q)*S + (Q/2)*H*(1-d/p) = (1000/265)*105 + (265/2)*4*(1-1000/4000) = $ 794
Conslusion: With 30% reduction in setup cost, batch size, batch throughput time and total inventory cost decreased, where number of setups increased.
Explanation / Answer
A production center is used to manufacture several similar part types. Each set-up costs $150 and takes 3 hours. Economic Manufactured Quantity (EMQ) model is employed to decide the batch size. Processing time is deterministic with a capacity of 4,000 units per year. Production batches flow through the system with only minimal waiting time. Demand occurs at a constant rate of 1,000 units per year. The carrying cost rate is 40%/year and the raw material cost per item is $10. The production center is charged out at $30 per hour, including labor and the machining time is 60 minutes. Determine the impact on batch size, batch throughput time, number of set-ups, and total relevant inventory cost for a 30% reduction in set-up time and cost. The plant operated 2400 hours per year
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