Color View is a manufacturer of monitors for personal computers. Color View\'s n
ID: 353928 • Letter: C
Question
Color View is a manufacturer of monitors for personal computers. Color 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 S7,500 The annual cost of holding each of these monitors in inventory is estimated to be S120. (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
Demand = 9000
Set Up Cost = 7500
Holding Cost = 120
Production Rate = 2000/month
Utilization Rate = 9000/year = 750
A) Economic Production Lot Size = sqrt(2*Demand*Set Up Cost*Production Rate/(Holding Cost * (Production Rate-Utilization Rate))
=sqrt(2*9000*7500*2000/(120*(2000-750)) = 1341.64 ~ 1342
D) Max Inventory Level = Economic Prod Size * (Production rate - Utilization rate) / Production Rate
= 1342*(2000-750)/2000 = 838.75 ~ 839
This figure is less that Economic Prod Size because Economic Prod Size gives us details about the cumulative count of raw materials available in production and utilization stage at the end of the lead time (that is when the production & usage ceases and only utilization starts) where as the Inventory max gives us details about the count of raw material in the utilization stage only.
C) Production Run Time = EPQ/ Production Rate = 1342/2000 = 0.671 month = 21 days
Cycle Time = EPQ/Utilzation Rate = 1342/750 = 1.7893 months = 55 days
Frequecy of Prod = 1/(Prod Run Time + Cycle Time) = 0.0132/day = 0.4/month
B) Set Up cost = Demand*Set Up cost/EPQ = 9000*7500/1342 = 50298.06
Carrying Cost = Imax*Holding Cost/2 = 839*120/2 = 50340
Total Cost = Carrying Cost + Set Up Cost = 50298.06 + 50340 = 100638.06
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