Radovilsky Manufacturing Company, in Hayward, California, makes flashing lights
ID: 382231 • Letter: R
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 12,400 flashing lights per year and has the capability of producing 100 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? nothing units (round your response to the nearest whole number).
b) What is the average holding cost per year? $ nothing (round your response to two decimal places).
c) What is the average setup cost per year? $ nothing (round your response to two decimal places).
d) What is the total cost per year, including the cost of the lights? $ nothing (round your response to two decimal places).
Explanation / Answer
Annual demand = D = 12400 flashlights
Daily demand = d = 12400 / 300 = 41.33
Production capability = p = 100 / day
Cs = Cost of setting up = $49
Ch = annual inventory holding cost = $0.05
Thus optimal size of production run ( EPQ )
= Square root ( 2 x Cs x D / Ch x ( 1 – d/p))
= Square root ( 2 x 49 x 12400 / 0.05 x ( 1 – 41.33/100) )
= 6436.22 ( 6436 rounded to nearest whole number )
OPTIMAL SIZE OF PRODUCTION RUN = 6436
Optimal holding cost per year
= Ch x Average inventory
= Ch x EPQ/2 X ( 1 – d/p)
= 0.05 x 6436/2 X ( 1 – 41.33/100)
= $ 94.40
AVERAGE HOLDING COST PER YEAR = $94.40
Average set up cost
= Cs x Number of set ups
= Cs x Annual demand / EPQ
= $ 49 x 12400 /6436
= $94.40
AVERAGE SET UP COST = $94.40
Cost of lights = Unit price x Annual demand = 0.95 x 12400 = $ 11780
Total cost per year including cost of lights = $ 11780 + $ 94.40 + $94.40 = $ 11968.8
TOTAL COST PER YEAR INCLUDING COST OF LIGHTS = $11968.8
OPTIMAL SIZE OF PRODUCTION RUN = 6436
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