The cost to set up for producing a standard component is approximately $300. Onc

ID: 364364 • Letter: T

Question

The cost to set up for producing a standard component is approximately $300. Once set up

they can produce at a rate of approximately 20 units/day (5,000 units per year) at a cost of $100 each.

Annual demand is forecast at 2,000 units. If the firm uses 30% annual rate for holding inventory:

What is the most economical lot size to produce(ERL)? Square root ( 2 x Cs x D/ Ch X ( 1 – d/p) )

a. 200 b. 258.2 c. 1,000 d. 346.41 e. None

What is the average inventory level (units) ?

a. 77.46 b. 100 c. 129.1 d. 154.92 e. None

. What is the level of inventory (i.e., the proportion of production that goes into inventory)?

a. 0.25 b. 0.4 c. 0.6 d. 0.75 e. None

. What is the total inventory carrying costs ?

a. $1,080 b. $2,323.80 c. $3,873 d. $7,746 e. None

. What is the total number of days spent for production?

a. 2.5 days b. 10 days c. 12.91 days d. 50 days e. None

D = 2000 units

Cs = 300

Ch = 100*30% = 30

d = 2000/250 = 8 units/day

p = 20 units/day

1) The most economical size to produce = (2*D*Cs/(Ch*(1-d/p))) = (2*2000*300/(30*(1-8/20))) = 258.2

b. 258.2

2) Average inventory level = (Q/2)*(1-d/p) = (258/2)*(1-8/20) = 77.46

a. 77.46

3) Level of inventory = (p-d)/p = (20-8)/20 = 0.6

c. 0.6

4) Total inventory carrying costs = (Q/2)*(1-d/p)*Ch = (258.2/2)*(1-8/20)*30 = 2323.80

b. $ 2,323.80

5) Total number of days spent for production = 258.2/20 = 12.91

c. 12.91 days

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.