A production facility is trying to expand production on a machine that is currently used to...
A production facility is trying to expand production on a machine that is currently used to produce one part. This item has an annual demand of 1000 units, an annual carrying cost of $10 per unit, and a setup cost of $400. They operate 50 weeks per year and can produce 40 units per week.
What percentage of the time are they using this machine?
Homework Answers
Annual Demand = D = 1000/year
Setup Cost = Co = $400
Holding Cost = Cc = $10/year
Economic Production Quantity Q* = √(2DCo/Cc) = √(2*1000*400/10) = 283
Number of Production cycles / year = Annual Demand / Q* = 1000/283 = 3.53 or 4
Hence, units produced per year = 4 * 283 = 1132
Production capacity / year = 50*40 = 2000
% of time the machine is used = units produced per year / production capacity per year = 1132/2000 * 100% = 56.6%
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