Please help me solve this problem.. Please give me the right answers.. Thank you
ID: 352071 • Letter: P
Question
Please help me solve this problem.. Please give me the right answers.. Thank you
Good View is a manufacturer of monitors for personal computers.Good View’s newest monitor is X-435 model. The company expects sales of this model to run at the rate of 9,000 per year for a while. The facilities for producing this model are shared with several other models. While these production facilities are devoted to the X-435 model, the production rate is 2,000 monitors per month. The cost each time the facilities are set up for production run for this model is $7,500. The annual cost of holding each of these monitors in inventory is estimated to be $120.
(a) Determine the economic production lot size.
(b) Find the corresponding annual setup cost, annual holding cost and total variable inventory cost per year.
(c) How long each production run last and how frequently should they occur? (Give your answer in month).
(d) What is the maximum inventory level? Why is this less than the production lot size?
Explanation / Answer
Annual Demand D = 9000
Demand rate d per month = 9000/12 = 750
Production rate p per month = 2000
Setup cost S = 7500 $
Holding cost H = 120 $
a) EPQ = SQRT(2*D*S/H)*SQRT(p/p-d) = SQRT(2*9000*7500/120)*SQRT(2000/(2000-750)) = 1342
b) Annual setup cost = (D/Q)*S = (9000/1342)*7500 = 50298 $
Annual Holding cost = (Q/2)*H*((p-d)/p) = 50325 $
Total variable inventory cost = 50298+50325 = 100623 $
c) Length of production run = Q/p = 1342/2000 = 0.671 months
Frequency(cycle length) = Q/d = 1342/750 = 1.7893 months
d) Maximum inventory level = Q*(1-d/p) = 1342*(1250/2000) = 839 (rounded off).
It is less than EPQ as inventory gets depleted for orders.