Question

Sydney is the production manager of silver enterprises, a small producer of metal parts. Silver enterprises supplies afc trading, a larger assemble company, with 15,000 wheel bearings each year. This order has been stable for some time. Setup cost for silver enterprises is $40, and holding cost is $0. 60 per wheel bearing per year. Silver enterprises can produce 500 wheel bearings per day. Afc trading is a just –in-time manufacturer and requires that 50 bearings be shipped to its plant each business day.

Answer 1

If Afc trading is a just–in-time manufacturer and requires that 50 bearings be shipped to its plant each business day. The optimum production quantity is 1,490.71 units.

Optimum production quantity

Using this formula

Production order quantity=√2DS/H[1-d/p]

Let plug in the formula

Production order quantity=√2×15,000×$40/$0.60[1-50/500]

Production order quantity=√1,200,000/0.60(1-0.1)

Production order quantity=√1,200,000/0.60(0.90)

Production order quantity=√1,200,000/0.54

Production order quantity=√2,222,222

Production order quantity=1,490.71 units

Inconclusion the optimum production quantity is 1,490.71 units.

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