Question

Rick Wing has a repetitive manufacturing plant producing automobile steering wheels. Use the following data to prepare for a reduced lot size. The firm uses a work year of 305 days.
Annual demand for steering wheels 30,500
Daily demand 100
Daily production (8 hours) 800
Desired lot size (2 hours of production) 200
Holding cost per unit per year $10
What is the setup cost, based on the desired lot size?

Answer 1

Answer:

$5.74

Explanation:

Q* = 2DS / H[1-(d/p)]

Q² = 2DS / H[1-(d/p)]

S = (Q²)(H)[1 - (d/p) / 2D

Setup cost S = (200^2)*(10)*(1 - (100/800)) / 2*30,500

Setup cost S = 40000*10*0.875 / 61000

Setup cost S = 350000 / 61000

Setup cost S = 5.737704918032787

Setup cost S = $5.74