Question

A firm wants to develop a level material use schedule based on the following data. What should be the setup cost? Desired lot size: 60 Annual demand: 40,000 Holding cost: $20 per unit per year Daily production rate: 320 Work days per year: 250

Answer 1

Answer: set up cost is $-111.6 ~ $ -112.

Explanation:

In determining the set up costs, the formula used is (Q ^ 2 * H[1 - d ÷ P]) ÷ 2 × D

where;

Q represents Desired lot size

H represents Holding Cost

D represents Annual Demand

P represents Daily production

Therefore, (60 ^ 2 × 20[1 - 40,000 ÷ 320] ÷ 2 × 40,000)

= 72,000[ 1 - 125] ÷ 80,000

= 72,000[ -124] ÷ 80,000

= -8,928,000 ÷ 80,000

=$ -111.6 is the set up cost.

Answer 2

Answer:

$0.45

Explanation:

Given that

Desired lot size = 60

Annual demand = 40000

Holding cost = 20 per unit

Daily production rate = 320

Workdays per year = 250

Recall that

S = (Q^2 H[1 - d/p])/ 2d

Where S = setup cost

D = annual demand

Q = order quality

P = daily production

Seeing that daily demand is not given. We find d

d = 40000/250 = 160

Therefore

S = [60^2 20( 1 - 60/320)] / 2 × 40000

S = 3600 20 ( -1.12)/ 80000

S = $0.45