Question

Carol Cagle has a repetitive manufacturing plant producing trailer hitches in Arlington, Texas. The plant has an average inventory turnover of only 12 times per year. He has therefore determined that he will reduce his component lot sizes. He has developed the following data for one component, the safety chain clip:
Setup Labor Cost: $30 / hr
Annual Holding Cost: $12 / Unit
Daily Production: 976 Units / 8 Hour Day
Annual Demand: 30,000 (250 days each x daily demand of 120 units)
Desired Lot Size: 122 units (One Hour of Production)

To obtain the desired lot size, the set-up time that should be achieved = ___ minutes (round your response to two decimal places).

Answer 1

Answer:

5.22 minutes

Explanation:

Given that,

Average inventory turnover = 12 times per year

Setup Labor Cost (L) = $30 / hr

Annual Holding Cost (H) = $12 / Unit

Daily Production (P) = 976 Units / 8 Hour Day

Annual Demand (D) = 30,000 (250 days each × daily demand of 120 units)

Desired Lot Size (S) = 122 units (One Hour of Production)

Setup cost:

$=\frac{H(S)^{2} }{2\times Annual\ demand} \times \frac{p-Daily\ demand}{p}$

$=\frac{12(122)^{2} }{2\times 30,000} \times \frac{976-120}{976}$

= 2.61

Setup time:

$=\frac{Setup\ cost}{Labour\ rate}$

$=\frac{2.61}{30}$

= 0.087 hours or we can say that 5.22 minutes.

Therefore, To obtain the desired lot size, the set-up time that should be achieved = 5.22 minutes