Determine the optimal production batch size for the supplier

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A supplier to Toyota stamps out parts using a press. Changing a part type requires the supplier to change the die on the press. This changeover currently takes four hours. The supplier estimates that each hour spent on the changeover costs $266. Demand for parts is 1054 per month. Each part costs the supplier $98, and the supplier incurs an annual holding cost of 25%.

Determine the optimal production batch size for the supplier.  

Toyota would like the supplier to reduce their batch size by a factor of four; that is, if the supplier currently produces Q parts per batch, Toyota would like them to produce Q/4 parts per batch. What should the new setup cost?

Reference no: EM131278967

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