Question: Emarpy Appliance is a company that produces all kinds of major appliances. Bud Banis, the president of Emarpy, is concerned about the production policy for the company's best-selling refrigerator. The annual demand for this has been about 7,500, units each year, and this demand has been constant throughout the year. The production capacity is 130 units per day. Each time production starts, it costs the company $110 to move materials into place, reset the assembly line, and clean the equipment. The holding cost of a refrigerator is $47 per year. The current production plan calls for 390 refrigerators to be produced in each production run. Assume there are 250 working days per year.
a) If the current policy continues, how many refrigerators would be in inventory when production stops?
b) What would the average inventory level be?
c) If the company produces 390 refrigerators at a time, what would the total annual setup cost and holding cost be?
d) If Bud Banis wants to minimize the total annual inventory cost, how many refrigerators should be produced in each production run?
e) How much would this save the company in inventory costs compared to the current policy of producing 390 units in each production run?