Bob's Bumpers has a repetitive manufacturing facility in Kentucky that makes automobile bumpers and other auto body parts. The facility operates 250 days per year and has annual demand of 60,000 bumpers. They can produce up to 320 bumpers each day. It costs $53 to set up the production line to produce bumpers. The cost of each bumper is $95 and annual holding costs are $25 per unit. Setup labor cost is $23 per hour.
Based on the above information, what is the optimal size of the production run for bumpers?
Based on your answer to the previous question, and assuming the manufacturer holds no safety stock, what would be the average inventory for these bumpers?
Based on your answer two questions back, how many production runs would be required each year to satisfy demand?
Suppose the customer (an auto manufacturer) wants to purchase these bumpers in lots of 250 and that Bob's Bumpers is able to reduce setup costs to the point where 250 is now the optimal production run quantity. How much will they save in annual holding costs with this new lower production quantity?
How much will they save in annual setup costs with this new lower production quantity?