Scenario C.1
Jerry Allison is in charge of production for a small producer of plumbing supplies. The cricket model has an estimated annual demand of 12,000 units and can be produced at a production rate of 90 units per day. The company produces (and sells) the cricket 300 days per year. Setup cost to produce this model averages $22 and the item has a holding cost of $3 per unit per year.
-Use the information in Scenario C.1. If Jerry chooses to produce batches dictated by the economic production lot size (ELS) model, how many days elapse between the start of consecutive production runs (what is the time between runs or TBO)?
A) fewer than or equal to 8 days
B) greater than 8 days but fewer than or equal to 10 days
C) greater than 10 days but fewer than or equal to 12 days
D) greater than 12 days

Question

Quizplus · Accepted Answer

The Economic Production Lot Size (ELS) model determines the optimal production quantity that minimizes the total cost, including setup and holding costs. The time between orders (TBO) can be calculated using the formula TBO = ELS / daily demand. However, without calculating the exact ELS value here, we know that the demand rate and production rate significantly influence the TBO. Given the production rate is much higher than the daily demand (90 units produced per day vs. an average daily demand of 40 units, since 12,000 units are needed over 300 days), the production runs will be less frequent, implying a TBO greater than the options provided. Therefore, without the exact calculation, the information suggests a longer TBO, leading to the selection of the option indicating a TBO greater than 12 days.

Scenario C.1 Jerry Allison Is in Charge of Production for a Small