I need a detailed assistance to solve this problem in: Operations Analysis.
3) A chemical manufacturer produces a compound at the rate of 10,000 pounds a day over 250 days each year. Annual demand for that compound is 600,000 pounds per year, and each pound sells for $3.90. There is a fixed setup cost of $1,500 for each production run, and a variable cost of $3.50 for each pound produced. The following costs are incurred:
a)- What is the optimal production lot for the compound (write down the model name, its parameters and formula)?
Step1: Calculating the value of optimal production lot for the compound. We have,
Model Name: Economic production Quantity (EPQ)
The formula of EPQ is as follow:
EPQ = Square Root of [2 x D x S / h (1- D/P)]
Here,
D = Annual Demand = 600,000 pounds per year
S = Set-up Cost per production run = $ 1,500
P = Total production = 10,000 x 250 = 2,500,000
h =Holding cost = (Cost of capital + Storage and handling cost) Variable cost per pound
h = (0.22 + 0.12) $ 3.50 = 0.32 x $ 3.50 = $ 1.12 per pound, per year
Substituting these value in the above formula. We get;
EPQ = Square Root of [2 x 600,000 x $1,500 / $ 1.12 (1- 600,000/2,500,000)]
EPQ = Square Root of [$1,800,000,000 / $ 1.12(1 – 0.24)]
EPQ = 45,985.45 units
Step2: Calculating the value of uptime, downtime and cycle time in days, cycle fraction of uptime and the cycle fraction of downtime. We have,
(a) Cycle time between production run = EQP / Total Demand
Time between production run = 45,985.45 / 600,000
Time between production run = 0.07664
(b) Value of uptime = EPQ / Total production
Value of uptime = 45,985.45 / 2,500,000
Value of uptime = 0.01839
(c) Value of downtime = Cycle time between production run – Value of uptime
Value of downtime = 0.07664 – 0.01839
Value of downtime = 0.05825
(d) Cycle fraction of uptime = Value of uptime / Cycle time between production run
Cycle fraction of uptime = 0.01839 / 0.07664
Cycle fraction of uptime = 0.2399
(e) Cycle fraction of downtime = Value of downtime / Cycle time between production run
Cycle fraction of downtime = 0.05825 / 0.07664
Cycle fraction of downtime = 0.760
Step3: Calculating the value of average annual holding and setup costs for the compound. We have,
The average annual cost of holding and setup = D*S/Q + h (1- D/P) Q/2
Here,
D = Total Demand = 600,000 pounds
P = Total production = 2,500,000
S = Set-up cost = $ 1,500
Q = EPQ = 45,985.45 pounds
h = Carrying cost = = (0.22 + 0.12) $ 3.50 = 0.32 x $ 3.50 = $ 1.12 per pound, pe...
Q: What are the key decision rules for managers facing flat or declining markets?
A: 1. Transformational Innovation:In case of the declining market, organizations are required to introd...
Q: I need a detailed assistance to solve this problem in: Operations Analysis. #4) A greengrocer has ex...
A: Compute the space consumed by Lettuce:
Q: Thomas' Bike Shop stocks a high volume item that has a normally distributed demand during the reorde...
A: Given information:Average daily demand = 70 unitsLead time ...
Q: Garrett works at a snack food company which has a product divisional structure. In this type of stru...
A: Solution:A snack food company has a product divisional structure. In product divisional struture, ea...
Q: Innis Investments manages funds for a number of companies and wealthy clients. The investment strate...
A: Here we have to consider 2 assumptions1.X units in stock fund is2.Y units in money market fund is Th...
Q: Assume you are a manufacturer of small kitchen electrics, like Hamilton Beach/Proctor Silex, and you...
A: Focus teams is glorious thanks to hear the voice of true analysis among a bunch of any size .With al...
Q: I need a detailed explanation and assistance on how to solve this problem: The company decided that ...
A: Since the project network diagram is not given we are assuming the following network diagram in AOA ...
Q: Most experts believe that an ERP system, with all the advantages it offers, also has drawbacks, such...
A: Through ERP systems have on top of mentioned drawbacks however the advantage it gives to the organiz...
Q: Repair calls are handled by one repairman at a photocopy shop. Repair time, including traveltime, is...
A: A)Identify the queueing model:The queueing model identified using the given situation is M/M/1 queue...
Sorry about that. What wasn’t helpful?