Harley-Davidson has its engine assembly plant in Milwaukee and its motorcycle as

Question

Harley-Davidson has its engine assembly plant in Milwaukee and its motorcycle assembly plant in Pennsylvania. Engines are transported between the two plants using trucks, with each trip costing $1,000. The motorcycle plant assembles and sells 300 motorcycles each day. Each engine costs $500, and Harley incurs a holding cost of 20 percent per year. As part of its initiative to implemen just-in-time (JIT) manufacturing at the motorcycle assembly plant, Harley has reduced the number of engines loaded on each truck to 100.

a. If each truck trip still costs $1,000, how does this decision impact annual inventory costs at Harley?

b. What should the cost of each truck be if a loaded of 100 engines is to be optimal for Harley?

Explanation / Answer

a. This decision will reducre the annual inventory cost as JIT system disallow stocking the goods and incurring inventory holding cost.

b. S = (hC(Q*2))/(2D) = ((0.2*500*(1002))/2*300) = $1,666.67

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