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2 April, 00:44

A product has annual demand of 100,000 units. The plant manager wants production to follow a four-hour cycle. Based on the following data, what setup cost will enable the desired production cycle? d = 400 per day (250 days per year), p = 4000 units per day, H = $40 per unit per year, and Q = 200 (demand for four hours, half a day).

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  1. 2 April, 02:07
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    Answer: The options are given below:

    A. $18.00

    B. $1,036.80

    C. $2.00

    D. $7.20

    E. $64.00

    The correct option is D. $7.20

    Explanation:

    From the question above, we were given:

    Annual demand = 100,000 units

    Production = 4 hour cycle

    d = 400 per day (250 days per year)

    p = 4000 units per day

    H = $40 per unit per year

    Q = 200

    We will be using the EPQ or Q formula to calculate the cost setup, thus:

    Q = √ (2Ds/H). √ (p / (p-d)

    200=√ (2x400x250s/40. √ (4000 / (4000-400)

    200=√5,000s. √1.11

    By squaring both sides, we have:

    40,000=5,550s

    s=40,000/5,550

    s=7.20
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