The Friendly Sausage Factory (FSF) can produce hot dogs at a rate of 5,000 per d

Question

The Friendly Sausage Factory (FSF) can produce hot dogs at a rate of 5,000 per day. FSF supplies hot dogs to local restaurants at a steady rate of 250 per day. The cost to prepare the equipment for producing hot dogs is $66. Annual holding costs are 45 cents per hot dog. The factory operates 292 days a year.

The Friendly Sausage Factory (FSF) can produce hot dogs at a rate of 5,000 per day. FSF supplies hot dogs to local restaurants at a steady rate of 250 per day. The cost to prepare the equipment for producing hot dogs is $66. Annual holding costs are 45 cents per hot dog. The factory operates 292 days a year.

Explanation / Answer

D = Annual demand = 250 * 365 = 91250

S = Cost to prepare equipment = $ 66

H = cost for keeping 1 item in inventory for a year = $ 0.45

p = 5000, when production is started: production capacity

u = usage rate of this firm on daily basis = 91250 / 292 = 312.5

Optimal run size = {(2*D*S*p)/(H*(p-u))}^0.5

= (2*91250*66*5000/0.45*4687.5)^0.5 = 5343

b. Number of runs per year = 91250/5343 = 17

c. Length in days = 91250/5000 = 18.25 days

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