Carol Cagle has a repetitive manufacturing plant producing trailer hitches in Ar
ID: 419417 • 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
$30 per hour
Annual holding cost
$16 per unit
Daily production
960 units/8 hour day
Annual demand
23,000 (250 days each × daily demand of 92 units)
Desired lot size
120 units (one hour of production)
To obtain the desired lot size, the set-up time that should be achieved =
minutes (round your response to two decimal places).
Setup labor cost
$30 per hour
Annual holding cost
$16 per unit
Daily production
960 units/8 hour day
Annual demand
23,000 (250 days each × daily demand of 92 units)
Desired lot size
120 units (one hour of production)
Explanation / Answer
Answer: - Given data
Setup labor cost = $30 per hour
(H) Annual holding cost = $16 per unit
(p) Daily production = 960 units/8 hour day
(D) Annual demand = 23,000 (250 days each × daily demand of 92 units)
(d) Daily demand = 23,000/250 = 92 units
(Q) Desired lot size = 120 units (one hour of production)
Formula to calculate Setup time = (Setup cost / Labor cost) * 60
In order to calculate setup time we need to calculate setup cost first
Where, formula for calculating Setup Cost = (Q^2) (H) (1-d/p) / 2D
Setup Cost = (120^2) ($16) (1-92/960) / (2*23,000)
Setup Cost = 208,320/46,000
Setup Cost = 4.53
So, Setup time = (Setup cost / Labor cost) * 60
=> (4.53/$30)*60 = 9.06 minutes