Airgo Corp produces a wide variety of products in their central Ontario facility. Many of these products fit within a line of standard truck and trailer parts. Within this is a set of hitches that can be made in two sizes (1-1/4 and 2) and three strengths (light duty, medium duty, and heavy duty). All of the hitches in this line have "natural" finishes so not additonal steps are necessary after they are cast. The machine used to cast these six hitch variations is available for 2000 hours per year. Operators are paid $15.00 per hour including benefits.
Simone is working to establish her reputation at Airgo Corp as part of her internship opportunity. She is looking for a way to improve the operations. She has been working on the hitch project and is looking at possible ways to cut costs. At this point she has studied the processes and their associated costs, and completed forecasts for the next year's demand.
Hitch A is the 1-1/4 inch, light duty, natural hitch. Simone has forecast the demand for this hitch at 6,000 units for the next year. It takes one operator 6.6 hours to perform a setup for this hitch and no other setup costs are incurred when setting up the machine. In addition, the holding costs for this item are $4.12 per unit per year.This hitch has a current batch size of 1,500 units per production run.
Simone has determined that traditional EOQ is applicable for this problem. Determine the order quantity (EOQ) Simone should use if this determination is correct.