The following data apply to sheet metal parts produced at a stamping plant that

Question

The following data apply to sheet metal parts produced at a stamping plant that serves a final assembly plant in the automotive industry. The data are average values representative of the parts made at the plant. Annual demand = 150,000 pc (for each part produced); average cost per piece = $20; holding cost = 25%, changeover (setup) time for the presses = 5 hours; cost of downtime on any given press = $200/hr. (a) Compute the economic batch size and the total annual inventory cost for the data. (b) If the changeover time could be reduced to 30 min., compute the economic batch size and the total annual inventory cost.

Explanation / Answer

a) D=150000, S=$200/hr*5hr=$1000, H=$18*20%=3.6

EOQ=sqrt(2DS/H)=sqrt(2(150000)(5*200)/(18*.2))=9129pc

b) Q=EOQ=9129

C=(QH/2)+(DS/Q)=((9129/2)*3.6)+((150000/9129)*1000)=$32863

c) new S=$200/hr*(10/60)hr=$33

EOQ=sqrt(2DS/H)=sqrt(2(150000)((10/60)*200)/(18*.2))=1667pc

d) new Q=EOQ=1667

C=(QH/2)+(DS/Q)=(((1667/2)*3.6)+((150000/1667)*33)=$5970

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