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In European Metals, we examined a "cyclic schedule," in which we produce each item in turn, until all items have been produced; then we start over at the beginning. Refer to the EuroMet spreadsheet.

a. If you increase the slack required from 0.05 to 0.075 (EuroMet cell E31), the costs (see Cost Comparison worksheet) go down. This is surprising since inventory cost increases. The reason for the reduction is that the setup cost and other costs would imply an EOQ value of around 2361, greater than the current value of 1918 (cycle time in hours, 92.76, times demand per hour, 20.68).

Use the total setup cost of 24 items times 0.5 hour per setup times \$160 per hour of setup; also use the total demand rate per hour for all items of 20.68, and the inventory cost per hour per unit of \$480*0.26/(365*24).

Compute the EOQ for the overall cycle; i.e., act as if the demand was for one aggregate item. Verify the 2361 value. Then, how many days of supply is that; that is, what cycle time is implied?

## SOLUTION This solution is FREE courtesy of BrainMass!

EOQ is given by:

Q* = ((2*d*s)/(Holding cost))^.5
where d = hourly or annual demand. Note it doesnt matter what we use as long as the holding cost is also in the same time frame. So if we use horly demand , holding cost shud also be hourly.
s = set up cost

So Q* = ((2*20.68*.5*160*24)/(480*.26/(365*24)))^.5
= 2360.94 or approximately 2361. ( verified)

Number of days of supply : Demand = 20.68/hr or daily demand = 20.68*24 = 496.32
Q = 2361.

So days = 2361/496.32 = 4.757 days or 114.16 hours.

Hope it is clear.

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