Radovilsky Manufacturing Company, in Hayward. California. makes flashing lights

Question

Radovilsky Manufacturing Company, in Hayward. California. makes flashing lights for toys. The company operates its production facility 300 days per year. It has orders for about 12,500 flashing lights per year and has the capability of producing 95 per day. Setting up the light production costs $49. The cost of each light is $0.95 The holding cost is $0.05 per light per year. a) What is the optimal size of the production run? b) What is the average holding cost per year? c) What is the average setup cost per year? d) What is the total cost per year, including the cost of the lights?

Explanation / Answer

Demand = 12500 Capacity = 300*95 = 28500 Since demand is less than supply, demand should be produced to avaid carrying costs. The optimum production Qty per run = Square root (2 UA/C) = square root of (2*12500*49/0.05) = 4950 Avg Holding cost per year = Avg inventory * 0.05 = 4950/2*0.05 = 123.75 Avg setup cost per annum = 12500/4950*49 = 123.73 Total cost per year = production cost+ setup cost+ carryng cost =( 12500*0.95)+123.75+123.73 = $12122.38

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