Statement of a problem № m1307


Consider the Emarpy Appliance situation in Problem 6-56. If Richard Feehan wants to minimize the total annual inventory cost, how many refrigerators should be produced in each production run? How much would this save the company in inventory costs compared with the current policy of producing 400 in each production run? In Problem 6-56 Emarpy Appliance produces all kinds of major appliances. Richard Feehan, the president of Emarpy, is concerned about the production policy for the company’s bestselling refrigerator. The demand for this has been relatively constant at about 8,000 units each year. The production capacity for this product is 200 units per day. Each time production starts, it costs the company $ 120 to move materials into place, reset the assembly line, and clean the equipment. The holding cost of a refrigerator is $ 50 per year. The current production plan calls for 400 refrigerators to be produced in each production run. Assume there are 250 working days per year.

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