Rick Wing has a repetitive manufacturing plant producing automobile steering whe
ID: 384014 • Letter: R
Question
Rick Wing has a repetitive manufacturing plant producing automobile steering wheels. Use the following data to prepare for a reduced lot size. The firm uses a work year of 300 days.
Setup labor cost
$60.00 per hour
Annual holding cost
$19 per unit
Daily production (8 hours)
1,040 units/day
Annual demand for steering wheels
33,000 (300 days×daily demand of 110 units)
Desired lot size (2 hours of production)
a) Setup cost = ______
(round your response to two decimal places).
b) Setup time = ______ minutes (round your response to two decimal places).
Setup labor cost
$60.00 per hour
Annual holding cost
$19 per unit
Daily production (8 hours)
1,040 units/day
Annual demand for steering wheels
33,000 (300 days×daily demand of 110 units)
Desired lot size (2 hours of production)
a) Setup cost = ______
(round your response to two decimal places).
b) Setup time = ______ minutes (round your response to two decimal places).
Q = 260 unitsExplanation / Answer
The problem will be solved using Economic Production Quantity ( EPQ) model.
EPQ = Square root ( 2 x Cs x D / Ch )
Where,
Cs = Set up cost
Given are,
EPQ = 260 units ( i.e. desired lot size )
Annual demand = D = 33,000 units
Daily demand = d = 300 units
Daily production = p = 1040 units
Annual unit holding cost = Ch = $19 / unit
Therefore,
EPQ = Square root ( 2 x Cs x D/ Ch x ( 1 – d/p) )
= Square root ( 2 x Cs x 33,000 / 19 x ( 1 – 300/1040))
= Square root ( 4885.63.Cs)
Or,
260 = Square root ( 4885.63.Cs)
Or,Cs = 67600 / 4885.65 = $13.836 ( $13.84 rounded to 2 decimal places )
SET UP COST = $13.84
Set up time = Set up cost / Set up labor cost per hour= 13.84/60 hour = 13.84 minutes
SET UP TIME = 13.84 MINUTES
SET UP COST = $13.84
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