Radovilsky Manufacturing Company, in Hayward, California, makes flashing lights
ID: 453767 • 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 11,900 flashing lights per year and has the capability of producing 95 per day. Setting up the light production cast $51. The cost of each light is $1.00. The holding cost is $0.15 per light per year.
What is the optimal size of the production run?
What is the average holding cost per year?
What is the average setup cost per year?
What is the total cost per year, including the cost of the lights?
Explanation / Answer
D = 11,900. p = no. of days*production capacity per day = 300*95 = 28,500. Co = set up cost = $51. Ch = holding cost = $0.15
a. optimal size of production run = (2*D*Co/ Ch)^0.5 * (p/p-D)^0.5
= (2*11900*51/0.15)^0.5 * (28500/28500-11900)^0.5 = 2844.644*1.31029 = 3,727.32 or 3,727 rounded off.
b. average holding cost per year = Ch*I max/2
Ch = 0.15. I max = (p-D)*d1, d1 = Q/p in days = 3727/28500 = 0.13077 years. Thus I max = (28500-11900)*0.13077 = 2170.81
= 0.15*2170.81/2 = 162.81
c. average set up cost per year = set up cost*D/Q = 51*11900/3727 = $162.84
d. Total of holding cost and set up cost = 162.81+162.84 = 325.65
cost of lights = demand * cost of each light = 11900*1 = $11,900
Thus total cost = Total of holding cost and set up cost+cost of lights = 325.65+11900 = 12,225.65
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