Station 1————Product B- demand of 120 units per day
Station 1 ———–Product C- demand of 120 units per day
Above is diagram for process that is capable of producing 3 different products A,B, C. The demand rate for each of the products is a steady 5 units per hour(120 units per day-24hrs). Station 1, which cost 2.0 Billion, produces either product at rate of 600 units per day when in operation but it takes 6 hours to change over between any of the products. 2 highly specialized workers are needed for this set up. Only set up specialists are allowed to set up Station 1 and these 7 workers(2 per shift plus one rotating one, resulting in 2 of them at any time) are all earning salaries. They are required to be there all time, are paid for all the time, including between set ups, even though they are not allowed to perform any other task.
Manufacturing costs of products are $300/unit
holding cost rate equals 20%/year
Assume the factory operates 350 days per year, 24 hours per day
a. What are the relevant costs for determining batch size for products a,b,c
b What is the optimal run length for a product?
c. what are the annual inventory costs?