Carol Cagle has a repetitive manufacturing plant producing trailer hitches in Ar
ID: 381382 • Letter: C
Question
Carol Cagle has a repetitive manufacturing plant producing trailer hitches in Arlington, Texas. The plant has an average inventory turnover of only 12 times per year. He has therefore determined that he will reduce his component lot sizes. He has developed the following data for one component, the safety chain clip: Setup labor cost $20 per hour Annual holding cost $16 per unit Daily production 960 u Annual demand 23,000 (250 days each x daily demand of 92 units) Desired lot size120 units (one hour of production) nits/8 hour day To obtain the desired lot size, the set-up time that should be achieved minutes und your response to two dec mal placesExplanation / Answer
Annual demand D - 23000
Daily demand rate d = 92
Daily production rate p = 960
Holding cost H = 16
Desired lot size, Q = 120
Setup cost, S = ? to be determined
Most economical lot size is EPQ = SQRT(2*D*S/(H*(1-d/p)))
Equating EPQ to desired lot size (Q)
SQRT(2*23000*S/(16*(1-92/960))) = 120
S = 1202*16*(1-92/960)/(2*23000) =4.53
Setup time = S / Setup labor cost = 4.53/20 = 0.2264 hours = 13.59 minutes