Water Wheelies manufactures the high-pressure sprinkler heads. These are produced at regular intervals at the rate of 20,000 per month. Demand is stable at 15,000 for each month. Each production run has a set-up cost of $120. Variable direct production costs are the $6.00 for labour, $2.00 for parts, and $4.00 for the raw materials. Water Wheelies employs an annual inventory holding cost of 20% of unit cost for carrying the unit for one year.
a. Find out the optimal production quantity during each production run.
b. Find out the annual holding cost, total cost and set-up cost.
c. Find out the maximum inventory.
d. Find out the cycle time between two production runs in days. Suppose 250 days per year. In each cycle calculate the number of days the production facility is busy (uptime) and number of days the production facility is idle (downtime).
e. Water Wheelies can increase its production rate by using the new technology, but the set-up cost per production run will as well double. Find out the economic production quantity and annual holding and set-up costs.