Determine the optimal production quantity, Financial Management

Water Wheelies manufactures high-pressure sprinkler heads. These are produced periodically at a rate of 20,000 per month. Demand is steady at 15,000 per month. Each production run has a set-up cost of $120. Variable direct production costs are $6.00 for labour, $2.00 for parts, and $4.00 for raw materials. Water Wheelies uses an annual inventory holding cost of 20% of the unit cost for carrying the unit for one year.

a.    Determine the optimal production quantity during each production run.

b.    Determine the annual holding cost, set-up cost and total cost.

c.     Determine the maximum inventory.

d.     Determine the cycle time between two production runs in days. Assume 250 days per year. In each cycle compute the number of days the production facility is busy (uptime) and the number of days the production facility is idle (downtime).

e.       (3 points) Water Wheelies can double its production rate by using a new technology, but the set-up cost per production run will also double. Determine the economic production quantity and the annual holding and set-up costs.

Posted Date: 2/14/2013 7:29:47 AM | Location : United States

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