Safety Tile Company (ST) has been using production runs of 100,000 tiles, 10 times per year to meet the demand of 1,000,000 tiles annually. The set-up cost is $5,000 per run and holding cost is estimated at 10% of the manufacturing cost of $1 per tile. The production capacity of the machine is 500,000 tiles per month. The factory is open 365 days per year.
a. What production schedule do you recommend?
b. How much is ST losing annually with their present production schedule?
c. What is the maximum number of tiles in inventory under the current policy? under the optimal policy?
d. What fraction of time is the machine idle (not producing tiles) under the current policy? Under the optimal policy?