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 $262. Demand for parts is 1093 per month. Each part costs the supplier $99, and the supplier incurs an annual holding cost of 24%.
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?