The Petoskey Potato Chip Company produces 3 varieties of gourmet potato chip. Th
ID: 381263 • Letter: T
Question
The Petoskey Potato Chip Company produces 3 varieties of gourmet potato chip. The varieties and average daily demand are given below: Bar-B-Que: 325 cases/day Sour Cream & Onion: 215 cases/day Classic Cut: 360 ases/day The company runs 24 hours/day and can produce 1,300 cases of potato chips per day. Each case of potato chip costs $20 to produce and Petoskey assumes 18% of this cost as the annual holding cost. It takes Petoskey 5 hours to setup for production of a different variety at a cost of $715. Calculate the minimum cost cycle time in days. Answer: 25.2 How is this calculated?
Explanation / Answer
Daily demand rate (d) = Bar-B-Que: 325 cases/day Sour Cream & Onion: 215 cases/day Classic Cut: 360 ases/day
Annual demand (D) = daily demand rate * 365 (considering 365 working days in a year)
Setup cost (S) = 715
Annual holding cost per unit (H) = 20*18% = 3.6
Daily production rate (p) = 1300
Economic Production Quantity of Bar-B-Que = SQRT(2DS/(H*(1-d/p)) = SQRT(2*325*365*715/(3.6*(1-325/1300))) = 7926
Economic Production Quantity of Sour Cream & = SQRT(2*215*365*715/(3.6*(1-215/1300))) = 6111
Economic Production Quantity of Classic Cut = SQRT(2DS/(H*(1-d/p)) = SQRT(2*360*365*715/(3.6*(1-360/1300))) = 8496
Total production quantity = 7926+6111+8496 = 22533
Cycle time = 22533/(325+215+360) = 25.04 days
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