JL.53 Bob's Bumpers has a repetitive manufacturing facility in
Kentucky that makes automobile bumpers and other auto body parts.
The facility operates 290 days per year and has annual demand of
75,000 bumpers. They can produce up to 330 bumpers each day. It
costs $59 to set up the production line to produce bumpers. The
cost of each bumper is $131 and annual holding costs are $37 per
unit. Setup labor cost is $28 per hour.
What is the optimal size of the production run for bumpers?
(Display your answer to the nearest
wholenumber.)
Based on your answer to the previous question, and assuming the
manufacturer holds no safety stock, what would be the average
inventory for these bumpers? (Display your answer to the nearest
wholenumber.)
Based on your answer two questions back, how many production runs
will be required each year to satisfy demand? HINT: As a general
rule, whenever calculating a value that is based on previous
calculations in Excel, always be sure to use cell references rather
than a rounded value as a calculation input. (Display your answer
to the nearest whole number.)
Suppose the customer (an auto manufacturer) wants to purchase in
lots of 620 and that Bob's Bumpers is able to reduce setup costs to
the point where 620 is now the optimal production run quantity. How
much will they save in annual holding costs with this new lower
production quantity? (Display your answer to two
decimal places.)
How much will they save in annual setup costs with this new lower
production quantity? (Display your answer to two
decimal places.)
Annual demand (D) = 75000
Daily demand (d) = 75000/290 = 258.62
Daily production capacity (p) = 330
Setup cost (S) = 59
Product cost (P) = 131
Holding cost (H) = 37
Optimal size
Q = sqrt( 2DS/ (H*(1-(d/p))))
Q = sqrt (2*75000*59/(37*(1-(258.62/330)))) = 1051.57 units or 1052 units
Average inventory
I = (Q/2)*(1 – d/p)
I = (1052/2)*(1-(258.62/330)) = 113.775 units
Number of production run
R = D/Q = 75000/1052 = 71.29 or 72 runs
Annual holding cost
C = (HQ/2)*(1-(d/p))
The setup cost has no role in the annual holding cost of the inventory.
At the current situation, C1 = (37*1052/2)*(1-(258.62/330)) = 4209.68
With the new quantity, C2 = (37*620/2)*(1-(258.62/330)) = 2480.99
The saving is 1728.69
Annual setup cost
O = DS/Q
However, we need to determine the new value of S.
620 = sqrt(2*75000*X/(37*(1-(258.62/330))))
X = 20.50
Old annual setup cost = 75000*59/1052 = 4206.27
New annual setup cost = 75000*20.5/620 = 2479.83
The saving is 1726.43
JL.53 Bob's Bumpers has a repetitive manufacturing facility in Kentucky that makes automobile bumpers and other...
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