Langray, Ltd. produces 50,000 units each day, and the average number of units in work in process is 200,000. The average annual inventory carrying cost is 25% of inventory cost, and the cost of the average work in process is $1,000,000.
Required:
1. Determine the throughput time.
2. Compute the annual carrying costs.
3. If the same daily output can be achieved while reducing the work in process by 50%, determine the new throughput time.
4. What has happened to the velocity of production in part 3?
5. Compute the annual carrying costs for part 3.
6. What was the impact of the action in part 3 on the carrying costs?