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Using the Production Run Model

EOQ Without Instantaneous Receipt Model (a.k.a., Production Run Model):
The wholesale distributor has traditionally relied upon an instantaneous receipt model in which the material associated with each order is received in a single batch. The toilet manufacturer has suggested to the president of the wholesale distributor that he might want to consider agreeing to accept receipt of ordered material incrementally over a period of time rather than in a single batch as a means for reducing total annual costs. The toilet manufacturer has advised that his factory's daily production rate is 26 toilets and the set-up cost for each production run is $350. The estimated annual demand for the toilets, estimated average demand per day, purchase cost from the toilet manufacturer per unit, lead time for a new order, ordering cost per order and average holding cost per unit per year remain the same as stated in the scenario for the current ordering model. Answer the following questions using the EOQ without instantaneous receipt model (production run model) in which goods are incrementally delivered at the same they are being still being produced.

1. What is the optimal order quantity without instantaneous receipt (material is accepted over time)?
2. What is the maximum number of units in inventory without instantaneous receipt (material is accepted over time)?
3. What is the average number of units in inventory without instantaneous receipt (material is accepted over time)?
4. What is the average dollar value of inventory without instantaneous receipt (material is accepted over time)?
5. What is the total annual cost (i.e., Purchase Cost + Ordering Cost + Holding Cost) without instantaneous receipt (material is accepted over time)?
6. What is the optimal reorder point without instantaneous receipt (material is accepted over time)?
7. How many set-ups per year will be necessary without instantaneous receipt (material is accepted over time)?

Solution Preview

Please see the attached file as well. It contains a chart for question 1 and all the other answers (in case they are easier to understand in a document)

1. EOQ = ...

Solution Summary

The expert examines using the production run model.

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