1) The Kaneohe Trading Company makes a fastener that they use in another process
ID: 376565 • Letter: 1
Question
1) The Kaneohe Trading Company makes a fastener that they use in another process. The firm operates 263 days per year and uses the fasteners at a fairly steady rate of 230 per day. Fasteners can be produced at a rate of 800 per day. Annual storage costs is $3.90 per fastener and setup cost to produce more fasteners is $135.
What is the economic run quantity?
Your Answer:
2)
The Kaneohe Trading Company makes a fastener that they use in another process. The firm operates 309 days per year and uses the fasteners at a fairly steady rate of 107 per day. Fasteners can be produced at a rate of 730 per day. Annual storage costs is $1.80 per fastener and setup cost to produce more fasteners is $90.
What is the maximum inventory level?
Your Answer:
Explanation / Answer
This will be solved using Economic Production Quantity ( EPQ ) model.
EPQ = Square root ( 2 x Cs x D / Ch x ( 1 – d/p) )
Where ,
D = Annual demand for Kaneohe Trading Company = 230/ day x 263 days = 60490
Ch = Annual unit storage cost = $ 3.9
Cs = annual unit set up cost = $135
Daily demand of fasteners = d = 230 per day
Daily production rate = p = 800
Hence , EPQ = Square root ( 2 x 135 x 60490 / 3.9 x ( 1 – 230/800 ) ) = Square root (16332300 / 3.9 x 0.7125) = 2424.37 ( 2424 rounded to nearest whole number )
Hence, economic production quantity = 2424
Maximum Inventory Level = EPQ x ( 1 – d/ p) = 2424 x ( 1 – 230/800) = 2424 x 0.7125 = 1727 ( rounded to whole number )
ECONOMIC RUN QUANTITY = 2424
MAXIMUM INVENTORY LEVEL = 1727
ECONOMIC RUN QUANTITY = 2424
MAXIMUM INVENTORY LEVEL = 1727
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