Question

XYZ Co. manufactures bicycles. Demand for this year’s model is expected to occur at a constant annual rate of 9200 items. One bicycle costs $165. The holding cost is based on a 6% annual rate, and production setup costs are $420. The manufacturing plant has an annual production capacity of 16000 units. Acme has 280 working days per year, and the lead time for a production run is 3 days. Use the production lot size model to compute the following values:
a) Minimum cost production lot size
b) Number of production runs per year
c) Cycle time
d) Length of a production run
e) Maximum inventory
f) Total annual cost
g) Reorder point

Answer 1

a) The minimum production lot size is 884 units,

b) The number of production runs per year is 10 runs.

c) The cycle time is 30 days (10 x 3)

d) The length of a production run is 3 days.

e) The Maximum inventory is 653 units.

f) The total annual cost is $1,523,180.

g) The Reorder point is 99 units (33 x 3).

What is the production lot size model?

The production lot size model is the same as the economic order quantity model, which is given as the EOQ = square root of: [2(setup costs)(demand rate)] / holding costs

The model shows the production lot size that minimizes total costs.

Data and Calculatiaons:

Annual demand = 9,200 units

Unit product cost = $165

Holding cost = $9.90 ($165 x 6%)

Setup costs = $420

Annual production capacity = 16,000 units

Working days per year = 280 days

Lead time for a production run = 3 days

EOQ = square root of: (2 x $420 x 9,200)/$9.90

= square root of 780,606

= 884 units

Production runs per year = 10 (9,200/884)

Daily demand = 33 units (9,200/280)

Total annual cost = ($165 x 9,200 + 99 x $9.90 + $420 x 10)

= $1,523,180 ($1,518,000 + $980. + $4,200)

Maximum inventory = Reordering Level + Reorder Quantity – (Minimum Consumption x Reorder period)

= 99 + 884 – (33 x 10)

= 653 units

Learn more about the production lot size model at brainly.com/question/17276797

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Answer 2

The business rate is very high which means the mode of the car is very new and the equation is 6(2)^2-6/5