Answer and Explanation:
The calculations and computations as per the question requirement are given below
a. Daily demand for this product is
Daily demand = Annual demand ÷ Working days per year
= 8,000 ÷ 250
= 32 units
b. The calculation of the number of days for continuing the production is
= current production plan calls ÷ production capacity
= 400 ÷ 200
= 2 days
c. The production runs per year required is
Number of production runs per year = Annual demand ÷ Production quantity
= 8,000 ÷ 400
= 20
d. In the case of production stops, the number of refrigerators and the average inventory is
But processing this first we have to find out the maximum inventory level which is
= Q × (1 - d ÷ p)
As
Q represents Production quantity
d represents daily demand
p represents production capacity
Therefore, the maximum inventory level is
= 400 × (1 - 32 ÷ 300)
= 400 × (1 - 0.16)
= 400 × 0.84
= 336 refrigerators
Hence, the average inventory is
= Maximyum inventory ÷ 2
= 336 refrigerators ÷ 2
= 168 refrigerators
e. The total annual set up cost and holding cost is
But before this, we need to compute it individually
Annual set up cost = Number of production runs per year × Set up cost
= 20 × $120
= $2,400
Annual holding cost = Average inventory level × Holding cost
= 168 × $50
= $8,400
Total annual set up cost and holding cost is
= $2,400 + $8,400
= $10,800
