Problem
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 bestselling refrigerator. The annual demand has been about 8,000 units each year, and this demand has been constant throughout the year. The production capacity is 200 units per day. Each time production starts, it costs the company $120 to move materials into place, reset the assembly line, and clean the equipment. The holding cost of a refrigerator is $50 per year. The current production plan calls for 400 refrigerators to be produced in each production run. Assume there are 250 working days per year.
A. What is the daily demand of this product?
B. If the company were to continue to produce 400 units each time production starts, how many days would production continue?
C. Under the current policy, how many production runs per year would be required? What would the annual setup cost be?
D. If the current policy continues, how many refrigerators would be in inventory when production stops? What would the average inventory level be?
E. If the company produces 400 refrigerators at a time, what would the total annual setup cost and holding cost be?
F. If Bud Banis wants to minimize the total annual inventory cost, how many refrigerators should be produced in each production run? How much would this save the company in inventory costs compared to the current policy of producing 400 in each production run?