TOPIC 4240

Description

A toy manufacturer makes its own wind-up motors, which are then put into its toys. While the toy

manufacturing process is continuous, the motors are intermittent flow. Data on the manufacture of the

motors appears below.

Annual demand (D) = 50,000 units Daily subassembly production rate = 1,000

Setup cost (S) = $85 per batch Daily subassembly usage rate = 200

Carrying cost = $.20 per unit per year

To minimize cost, how large should each batch of subassemblies be?

SOLUTION.

Annual demand (D) = 50,000 units 

Setup cost (S) = $85 per batch

Carrying cost (C) = $.20 per unit per year

Daily subassembly production rate (P) = 1,000

Daily subassembly usage rate (u) = 200

We need to calculate economic production quantity (EPQ);

EPQ =√(2 x D x S)/C x √P/(P - u) 

EPQ = √(2 x 50,000 x $85)/$0.20 x √1,000/(1,000 - 200)

         = √42,500,000 x √1.25
EPQ = 7,289 (Rounded to the nearest whole unit)

Therefore, to minimize cost, each batch of subassemblies should be 7,289 units