A company is about to begin production of a new product. The manager of the department that
will produce one of the components for the product wants to know how often the machine used
to produce the item will be available for other work. The machine will produce the item at a rate
of 200 units a day. Eighty units will be used daily in assembling the final product. Assembly will
take place five days a week, 50 weeks a year. The manager estimates that it will take almost a
full day to get the machine ready for a production run, at a cost of $300. Inventory holding costs
will be $10 a year.
Twelve Inventory Management
a. What run quantity should be used to minimize total annual costs?
b. How many days does it take to produce the optimal run quantity?
c. What is the average amount of inventory?
d. If the manager wants to run another job between runs of this item, and needs a minimum of
10 days per cycle for the other work, will there be enough time?
e. Given your answer to part d, the manager wants to explore options that will allow this other
job to be performed using this equipment. Name three options the manager can consider.
f. Suppose the manager decides to increase the run size of the new product. How many additional units would be needed to just accommodate the other job? How much will that increase
the total annual cost?