Question

Annual demand (D and u) is 4,260 tons, and production capacity is 6,000 tons in the roasting plant. Excess inventory has increased operational expense and spatial needs within the Starbucks' production facility. Amie Glaser has decided to introduce Just-In-Time (JIT) manufacturing and has asked you to establish a Quality Involvement Team (QIT) team to reduce the roasting machine's setup cost, economic production quantity, and hence, maximum inventory levels. The unit cost per ton remains at $2,400, and the annual holding cost is 30% of the unit cost. Your Quality Improvement Team has reduced setup cost significantly, from the original $650 to $162.50. Given the decreased setup cost, what is the Maximum Inventory Level ( Imax) generated by using the optimal Economic Production Quantity (EPO)? ho 0 47.23 units 0 23.61 units 40.72 units 33.40 units

Answer 1

Answer) 23.61 units

Given that,

Annual Demand = D = 4260

Annual Production = P = 6000

Holding Cost = H = 30% of 2400 = 720

Setup Cost = S = 162.5

Therefore, 1 - (D / P) = 0.29

Now, Economic Order Quantity = EPQ = √((2 x D x S) / (H x (1 - (D / P)))

= √((2 x 4260 x 162.5) / (720 x (1 - (4260 / 6000)))

= 81.4294

Therefore, EPQ = 81.4294

Maximum Inventory Level = Imax = EPQ x (1 - (D / P)) = 81.4294 x 0.29 = 23.61453

Therefore, Maximum Inventory Level, Imax = 23.61 units