Race One Motors is an Indonesian car manufacturer. At its largest manufacturing
ID: 382213 • Letter: R
Question
Race One Motors is an Indonesian car manufacturer. At its largest manufacturing facility, in Jakarta, the company produces subcomponents at a rate of 285 per day, and it uses these subcomponents at a rate of 12,600 per year (of 250 working days). Holding costs are $3 per item per year, and ordering costs are $29 per order. a) What is the economic production quantity? nothing units (round your response to two decimal places). b) How many production runs per year will be made? nothing production runs (round your response to two decimal places). c) What will be the maximum inventory level? nothing units (round your response to two decimal places). d) What percentage of time will the facility be producing components? nothing% (enter your response as a percentage rounded to two decimal places). e) What is the annual cost of ordering and holding inventory? $ nothing (round your response to two decimal places).
Explanation / Answer
Annual demand of subcomponents = D = 12600
Daily demand of subcomponents = d = 12600 / 250 = 50.4
Daily production rate = p = 285
Ordering cost = Co = $ 29 per order
Holding cost = Ch = $ 3 per item per year
Thus ,
Economic Production quantity
= Square root ( 2 x Co x D / Ch x ( 1 – d/p))
= Square root ( 2 x 29 x 12600 / 3 x ( 1 – 50.4/285))
= Square root ( 2 x 29 x 12600 / 3 x 0.8231)
= 544.016 ( 544.02 rounded to 2 decimal places )
ECONOMIC PRODUCTION QUANTITY = 544.02
Number of production run per year
= Annual demand / Economic Production quantity
= 12600 / 544.02
= 23.16
23.16 NUMBER OF PRODUCTION RUNS TO BE MADE IN A YEAR
Maximum inventory level
= EPQ x ( 1 – d/p )
= 544.02 x ( 1 – 50.4/285)
= 447.81
MAXIMUM INVENTORY LEVEL = 447.81 UNITS
Percentage of time facility will be producing components
= d/p x 100
= 50.4/ 285 x 100
= 17.68 %
PERCENTAGE OF TIME FACILITY WILL BE PRODUCING COMPONENTS = 17.68 %
Annual ordering cost
= Co x Number of orders
= Co x Annual demand / EPQ
= $ 29 x 12600 / 544.02
= $ 671.66
Annual inventory holding cost
= Ch x Average inventory
= Ch x EPQ/2 x ( 1 – d/p)
= 3 x 544.02/2 x ( 1 – 50.4/285 )
= $671.72
Thus annual cost of ordering and holding inventory = $ 671.66 + $ 671. 72 = $ 1343.38
ANNUAL COST OF ORDERING AND HOLDING INVENTORY = $ 1343.38
ECONOMIC PRODUCTION QUANTITY = 544.02
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