Factory X is trying to use level use scheduling. If their first target were to cut the current lot size in half, by what proportion must setup cost change?
A) Setup cost must be cut to one fourth its current value.
B) Setup cost must also be cut in half from its current value.
C) Setup cost must double from its current value.
D) cannot be determined
E) Setup cost must be cut one third its current value.

Question

Quizplus · Accepted Answer

In level use scheduling, reducing the lot size typically requires more frequent setups, which can increase setup costs unless those costs are reduced. Cutting the lot size in half would generally necessitate a significant reduction in setup costs to maintain or improve efficiency. The correct proportion, as per the economic order quantity (EOQ) model, is to cut setup cost to one fourth to balance the increased frequency of setups with lower per-setup costs, thus maintaining overall cost efficiency.

Factory X Is Trying to Use Level Use Scheduling