- Filter Systems produces air filters for domestic and foreign cars. One filter part number JJ39877, is supplied on an exclusive contract basis to Oil Changers at a constant 225 units monthly. Filter Systems can produce this filter at a rate of 50 per hour. Setup time to change the settings on the equipment is 1.5 hours. Worker time (including overhead) is charged at the rate of $55 per hour, and plant idle time during setups is estimated to cost the firm $100 per hour in lost profit. Filter Systems has established a 25 percent annual interest charge for determining holding cost. Each filter costs the company $2.50 to produce; they are sold for $5.50 each to Oil Changers. Assume 6-hour days, 20 working days per month, and 12 months per year for your calculations.
- How many JJ39877 filters should Filter Systems produce in each production run of this particular part to minimize annual holding and setup costs?
- Assuming that it produces the optimal number of filters in each run, what is the maximum level of on-hand inventory of these filters that the firm has at any point in time?
- What percentage of the working time does the company produce these particular filters, assuming that the policy in part (a) is used?
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