Determine the annual holding cost, Cost Accounting

A company produces three types of items. A single machine is used to produce the three items on a cyclical basis. The company has the policy that every item is produced once during each cycle, and it wants to determine the number of production cycles per year that will minimize the sum of holding and setup costs (no shortages allowed). The following data are given:

Pi = number of units of product i that could be produced per year if the machine were entirely devoted to producing product i

Di = annual demand for product i

Ki = cost of setting up production for product i

hi = cost of holding one unit of product i in inventory for one year

a. Suppose there are N cycles per year. Assuming that during each cycle, a fraction 1/N of all demand for each product is met, determine the annual holding cost and the annual setup cost.

b. Let qi* be the number of units of product i produced during each cycle. Determine the optimal value of N (call it N*) and qi*.

c. Let EROQi be the optimal production run size for product i if the cyclical nature of the problem is ignored. Suppose qi* is much smaller than EROQi. What conclusion could be drawn?

d. Under certain circumstances, it might not be desirable to produce every item during each cycle. Explain which of the following factors would tend to make it undesirable to produce product i during each cycle:

i) Demand is relatively low.

ii) The setup cost is relatively high.

iii) The holding cost is relatively high.

Posted Date: 2/28/2013 6:31:08 AM | Location : United States







Related Discussions:- Determine the annual holding cost, Assignment Help, Ask Question on Determine the annual holding cost, Get Answer, Expert's Help, Determine the annual holding cost Discussions

Write discussion on Determine the annual holding cost
Your posts are moderated
Related Questions
10) Mike Taylor, the owner of Tennessee River Boat Rentals, is estimating the cost of operating his boat rental company next year. He expects to have 450 rentals during 200Z. The f

You want to save $40,000 for a down payment on a new home. You expect to save $7,000 per year, be in the 25% tax bracket and hope to earn 4% on your investments. How long (in mon

The difference among "cost accounting" and "financial accounting are terms demote to the accounting techniques used internally by a company's management to explain the costs of run


Account Analysis Method of Cost Estimation By Utilizing account analysis, the accountant classifies and examines each ledger account like variable mixed or fixed. Into their v

MARGINAL COSTING As per the Chartered Institute of Management Accountants, London, the phrase 'Marginal cost' means - 'the amount at every given volume of output through which

Determine whether process is under control: Hall's refrigeration and heating company is concerned about complaints from their customers about some of their technicia

what is the importance and assumptions of application of marginal costing

Goal Definition and Communication - Behavioural Aspects of Standards Goal Definition The desired goals should be clearly defined to individuals, departments and the organ

What are investment appraisal methods when opening a new project?