Arthur Meiners is the production manager of Wheel-Rite, a small producer of metal parts. Wheel-Rite supplies Cal-Tex, a larger assembly company, with 10 comma 400 wheel bearings each year. This order has been stable for some time. Setup cost for Wheel-Rite is $39, and holding cost is $0.70 per wheel bearing per year. Wheel-Rite can produce 480 wheel bearings per day. Cal-Tex is a just-in-time manufacturer and requires that 52 bearings be shipped to it each business day. a) What is the optimum production quantity? nothing units (round your response to the nearest whole number).

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mtosi17 mtosi17 · Answer 1 · 2020-04-01T04:47:48+02:00

Answer:

The optimum production quantity is 72 wheel bearings per batch.

Explanation:

Wheel Rite can produce 480 wheel bearings per day.

Setup cost are $39 per batch.

Holding costs are $0.70 per unit per year.

The optimum batch size can be calculated as the one that minimizes the cost. This can be calculated with the Economic Order Quantity formula:

[tex]Q=\sqrt{\frac{2DS}{H} }[/tex]

In this case, the units are:

D: daily demand (52 u.)

S: Setup cost per order ($39)

H: holding cost per unit per year ($0.70)

Then, we have:

[tex]Q=\sqrt{\frac{2DS}{H} }=\sqrt{\frac{2*52*39}{0.7} }=\sqrt{5,794}=76.12\approx 72[/tex]

The optimum production quantity is 72 per batch.