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).

Question

Zion Johns

Business

6 December, 19:02

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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Answers (1)

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Ayla Burns · Answer 1

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