A plane company produces the wings for its aircrafts and uses 1500 wings a month
ID: 461955 • Letter: A
Question
A plane company produces the wings for its aircrafts and uses 1500 wings a month for its production. The production rate for the wing is 2500 units/month. It costs the company $800 to setup the production line for producing the wings, storage costs are $18 per unit per year. The firm operates 20 days a month, 12 months a year.
a.What is the optimal production quantity for the wings (round to nearest whole number)?
b.Determine the approximate length of a production run in days.
c.Approximately how many runs per year will there be?
d. How much could the company save annually if the setup costs could be reduced to $600? (clearly state the cost savings in $$)
Explanation / Answer
Answer:
a. Optimal Production Quantity = (2 x Set Cost x Demand Per Annum / Carrying Cost per annum)1/2 = (2 x $ 800 x 1,500 / $ 18)1/2 = 365.148 or 366 units.
b. Approxmiate length of a production run = 366 x 30 days / 2500 = 4.392 days
c. Approximate Runs per year = 1500 x 12 / 366 = 49.18 runs per year
d. If the set up cost could be reduced to $ 600 then Company can save 49.18 x $ 800 - 49.18 x $ 600 = 39344 - 29508 = $ 9,836 per annum.
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