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    Quantitative analysis of inventory: Optimal production lot size

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    Powell Industries produces its best-selling wPhone on a production line that has an annual capacity of 160,000 units.

    Williams Industries estimates the annual demand for this product to be at 60,000 units. The cost to set up the production line is $2345 and the annual holding cost is $20/unit. Current practice calls for production runs of 5,000 wPhones each month.

    INVENTORY POLICY
    ****************
    PRODUCTION LOT SIZE 4,744
    ANNUAL INVENTORY HOLDING COST $29,654
    ANNUAL SETUP COST $29,654
    TOTAL ANNUAL COST $59,309
    MAXIMUM INVENTORY LEVEL 2,965
    AVERAGE INVENTORY LEVEL 1,483
    NUMBER OF SETUPS PER YEAR 13
    CYCLE TIME (DAYS) 20

    Questions:

    1. What is the optimal production lot size?
    2. How many production runs of w/Phones should be made each year?
    3. What is the length of time between placing two consecutive orders (in days)?

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    https://brainmass.com/statistics/quantative-analysis-of-data/quantitative-analysis-inventory-optimal-production-lot-size-342967

    Solution Preview

    Powell Industries produces its best-selling wPhone on a production line that has an annual capacity of 160,000 units. Williams Industries estimates the annual demand for this product to be at 60,000 units. The cost to set up the production line is $2345 and the annual holding cost is $20/unit. Current practice calls for production runs of 5,000 wPhones each month.

    INVENTORY POLICY
    ...

    Solution Summary

    Quantitative analysis of inventory and optimal production lot size is examined.

    $2.19