Question

Emarpy Appliance is a company that produces all kinds of major appliances. Bud​ Banis, the president of​ Emarpy, is concerned about the production policy for the​ company's best-selling refrigerator. The annual demand for this has been about 7,250 units each​ year, and this demand has been constant throughout the year. The production capacity is 190 units per day. Each time production​ starts, it costs the company $110 to move materials into​ place, reset the assembly​ line, and clean the equipment. The holding cost of a refrigerator is ​$50 per year. The current production plan calls for 380 refrigerators to be produced in each production run. Assume there are 250 working days per year.

a. what is the dalu demand of this product ? _____ units (enter your respons as a whole number)

b. if the company were to continue to produce 390 units each time production starts how many days would production continue? ___ days (enter your respons as a whole number)

c. under the current policy, hoe many productions runs per year would be required? $____ (round your respons as a whole number)

what would the annual setup cost be ? ____ (runs (round your respons as a whole number)

d. if the current policy continues, how many refrigerators would be in inventory when production stops? ____ units  (round your respons as a whole number) what would the avarage inventory level be ? ____ units (round your respons as a whole number)

e. if the company produces 390 refrigerators at the time, what would the total annual setup cost and holding cost be ? $____(round your respons as a whole number)

f. if bud banis wants to minimize the total annual inventory cost, how many refrigerators should be produced in each production run ? ____ units (round your respons as a whole number)

how much would this save the company in inventory cost compared to the current policy of producting 390 units in each production run ? _____ (round your respons as a whole number)

Answer 1

Given That,

Demand = 7250 units

Production Capacity = 190 units per day

Ordering Cost/Set up cost = 110 per order

Holding Cost = 50 per unit per year

To be produced = 380 units

Working days in a year = 250 days

a)

Daily Demand = Annual Demand / Working days in a year = 7250/250 = 29 units

b)

Days of Production = To be produced quantity/Production Capacity = 380/190 = 2 days

c)

Production Run required in a year = Annual Demand / To be produced quantity = 7250/380 = 19.08 = 19

Annual Set up cost = Production Run required in a year * Set up cost = 19.08*110 = 2098.8 = 2099

d)

Maximum Inventory = To be produced in each run*(Daily production rate - daily demand rate)/Daily Production Rate

Maximum Inventory = 380*(190-29)/190 = 322 units

Average Inventory = 322/2 = 161 units

e)

Since, production batch quantity has been changed to 390

Holding Cost = ((390*(190-29)/190)/2)*50 = 8261.84

Set up cost = (7250/390)*110 = 2044.87

Total Cost = 8261.84 + 2044.87 = 10306.71 = 10307

f)

Optimal Order Quantity = (2DS/H)^(1/2) * (Daily Production rate/(Daily Production Rate - Daily Demand))^(1/2)

Optimal Order Quantity = (2*7250*110/50)^(1/2) * (190/(190-29))^(1/2) = 194.03 = 194

Holding Cost = ((194*(190-29)/190)/2)*50 = 4109.74

Set up cost = (7250/194)*110 = 4110.83

Total Cost = 4109.74 + 4110.83 = 8220.57

Saving in cost = 10306.71 - 8220.57 = 2086.14 = $2086