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Eli Orchid was finally successful in the introduction of Orchid Relief and is now producing the product on a regular basis. The company has estimated that for its 50g packaging, there is a rather constant demand of 100 packs per week while the company has the capability to produce 230 packs of this dose every week. Every time that the production is stopped and resumed, cleaning of the machines needs to be done estimated at a cost of $500 and takes 2 days. Additionally, the raw material and labour add up to a cost of $15 per pack of Orchid Relief, and unsold packs can be kept in inventory at an annual holding cost rate of 25%. (Assume 52 weeks in a year = 364 days per year.)
Use time-unit of a week in calculation
What are the following:
Production rate (P)=
Lead time (L) (time it takes from the time order is placed until production can get started)=
Setup cost per production initiation (Co)=
Per Unit production cost (C)=
Annual Holding rate (H) (what percent of the product's cost should be spent to keep in inventory for one unit of time) =
Holding cost for one unit of the production per unit time (Ch)= H*C =
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