Question

Arthur Meiners is the production manager of Wheel- Rite, a small producer of metal parts. Wheel-Rite supplies Cal- Tex, a larger assembly company, with 10,000 wheel bearings each year. This order has been stable for some time. Setup cost for Wheel-Rite is $40, and holding cost is $.60 per wheel bearing per year. Wheel-Rite can produce 500 wheel bearings per day. Cal- Tex is a just-in-time manufacturer and requires that 50 bearings be shipped to it each business day.

Required:
a) What is the optimum production quantity?
b) What is the maximum number of wheel bearings that will be in inventory at Wheel-Rite?
c) How many production runs of wheel bearings will Wheel-Rite have in a year?
d) What is the total setup plus holding cost for Wheel-Rite?

Answer 1

A.$1,217

B.$1,217 (1-50/500)

C.10000/1217 = 8.22

D.$3614.7

Step-by-step explanation:

a)

POQ = sqrt[2DS / H(1 – d/p)]

= sqrt[2*10000*40 / 0.6(1-50/500)]

= $1,217

b)

$1,217 (1-50/500)

c)

10000/1217 = 8.22

d)

Setup = 8.22*40=328.8

Hold.cost = 1/2HQ(1-d/p) = ½*0.6*1217(1-50/500) =3285.9

Setup+HC=$3614.7

Answer 2

a)POQ = sqrt[2DS / H(1 – d/p)] = sqrt[2*10000*40 / 0.6(1-50/500)] = 1217

;b)1217(1-50/500)

c)10000/1217 = 8.22

d)Setup = 8.22*40=328.8Hold.cost = 1/2HQ(1-d/p) = ½*0.6*1217(1-50/500)=3285.9Setup+HC=3614.7

Step-by-step explanation: