ALTERNATIVE ACTIVITY FOR GE-FEL OMDL

MWF Class 12:30 PM to 1:30 PM JW334MC

November 14, 2019

ECONOMIC PRODUCTION QUANLITY RELATED PROBLEMS:

1. Illumination Manufacturing Corporation, located at MEPZ, makes flashing

lights for various type of toys. The company operates its production facility
300 days per year. It has orders for about 12,000 flashing lights per year and
has the capability of producing 100 per day. Setting up the different lights
production costs P50.The production of each light is P1.00 per unit, while the
holding cost is P0.10 per unit per year.

a. What is the optimal size of the production run?

b. What is the average holding cost per year?
c. What is the average setup cost per year?
d. What is the total cost per year, including the cost of the lights?

2. Arthur Gomez is the production manager of People’s Cars and Rims, a small
local metal car parts fabricator. This company supplies all local car repair
shops within Cebu, Mandaue & Lapulapu Cities, which has a total
accumolative demand of 10,000 wheel rims annually. This order has been
consistently stable for the past several years after entering the market. The
company has a set-up cost of P40, and a holding cost of P0.60 per wheel rim
per year. People’s Car and Rims can produce 500 wheel rims per day. One
particular buyer is a just-in-time user and requires that 50 wheel rims to be
shipped to all his shipped to all its shop .

a. What is the optimum production quantity?

b. What is the maximum number of wheel rims that will be in inventory at
People’s Cars and Rims?
c. How many production runs of wheel rims will People’s Cars and Rims
have in a year?
d. What is the total set-up + holding cost for People’s Cars and Rims?