Shields Manufacturing produces two different types of engines: one for riding lawn mowers and one for jet skis. To produce the different engines, equipment must be set up. Each setup configuration corresponds to a particular type of engine. The setup cost per batch of engines is $4,000 for the lawn mower engine and $7,200 for the jet ski engine. The cost of carrying lawn mower engines in inventory is $2 per engine per year. The cost of carrying jet ski engines is $3 per engine per year. During the coming year, the company expects to produce 324,000 lawn mower engines and 750,000 jet ski engines. The company hopes to sell an average of 1,296 lawn mower engines per workday and an average of 1,500 jet ski engines per workday. It takes Shields two days to set up the equipment for production of either engine. Once set up, Shields can produce 4,000 engines per workday. There are 250 workdays available per year. The lead time for lawn mower engines is 11 days and for jet ski engines is 12 days.
Required
1. Compute the number of lawn mower engines that should be produced per setup to minimize total setup and carrying costs for this product.
2. Compute the total setup and carrying costs associated with the economic order quantity for lawn mower engines.
3. What is the reorder point for lawn mower engines?
4. Repeat Requirements 1 through 3 for the jet ski engines.
5. Using the economic-order batch size, is it possible for Shields to produce the amount that can be sold of each engine? Does scheduling have a role here? Explain. Is this a push- or pull-system approach to inventory management? Explain.