Platters Plus wants to determine the most cost efficient production run for their dinner plates. This quantity
Question:
Platters Plus wants to determine the most cost efficient production run for their dinner plates. This quantity should minimize the carrying costs of inventory and the setup costs of production. Management also wants to avoid stock-outs because this disrupts retail sales and creates rush orders which disrupt production of other dinnerware pieces. The following information is available:
Annual demand for dinner plates....................................240,000
Average daily demand for dinner plates.................................800
Maximum daily demand for dinner plates..............................896
Carrying cost per dinner plate...................................................$0.26
Setup costs............................................................................$150
Lead time....................................................................................5 days
Required:
A. Calculate the economic production batch size.
B. Calculate the safety stock.
C. Calculate the re-order point (the inventory level when a new setup should be started). Discuss any potential problems with the timing of this re-order point.
Step by Step Answer:
Cost Management Measuring, Monitoring and Motivating Performance
ISBN: 978-1119185697
3rd Canadian edition
Authors: Leslie G. Eldenburg, Susan K. Wolcott, Liang Hsuan Chen, Gail Cook