Rick Wing has a repetitive manufacturing plant producing automobile steering whe

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 300 days. Setup labor cost Annual holding cost Daily production (8 hours) Annual demand for steering wheels 30,000 (300 days x daily demand of 100 units) Desired lot size (2 hours of production) Q220 units S60.00 per hour $18 per unit 880 units/day a) Setup cost = $ (round your response to two decimal places) b) Setup time = minutes (round your response to two decimal places).

Explanation / Answer

Annual demand, D = 30,000

Annual holding cost per unit, H = 18

Daily production rate, p = 880 units/day

Daily demand rate, d = 100 units/day

Desired lot size, Q = 220 units

EPQ model minimizes the total inventory holding cost and ordering cost.

Using EPQ model, Optimal order size, Q = (2DS/(H*(1-d/p)))

S = Q2*H*(1-d/p)/2D = 2202*18*(1-100/880)/(2*30000) = 12.87

a) Setup cost = $ 12.87

b) Setup time = (Setup cost / setup labor cost per hour)*60 = (12.87/60)*60 = 12.87 minutes

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