Emarpy Appliance is a company that produces all kinds of major appliances. Bud Banis, the presidentof Emarpy, is concerned about the production policy for thecompany’s best-selling refrigerator. The annual demand hasbeen about 8,000 units each year, and this demand has beenconstant throughout the year. The production capacity is 200units per day. Each time production starts, it costs the company $120 to move materials into place, reset the assemblyline, and clean the equipment. The holding cost of a refrigerator is $50 per year. The current production plan calls for 400refrigerators to be produced in each production run. Assumethere are 250 working days per year.a) What is the daily demand of this product?b) If the company were to continue to produce 400 units eachtime production starts, how many days would productioncontinue?c) Under the current policy, how many production runs peryear would be required? What would the annual setup costbe?d) If the current policy continues, how many refrigeratorswould be in inventory when production stops? Whatwould the average inventory level be?e) If the company produces 400 refrigerators at a time, whatwould the total annual setup cost and holding cost be?f) If Bud Banis wants to minimize the total annual inventorycost, how many refrigerators should be produced in eachproduction run? How much would this save the companyin inventory costs compared to the current policy of producing 400 in each production run?

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
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Emarpy Appliance is a company that produces all kinds of major appliances. Bud Banis, the president
of Emarpy, is concerned about the production policy for the
company’s best-selling refrigerator. The annual demand has
been about 8,000 units each year, and this demand has been
constant throughout the year. The production capacity 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.
a) What is the daily demand of this product?
b) If the company were to continue to produce 400 units each
time production starts, how many days would production
continue?
c) Under the current policy, how many production runs per
year would be required? What would the annual setup cost
be?
d) If the current policy continues, how many refrigerators
would be in inventory when production stops? What
would the average inventory level be?
e) If the company produces 400 refrigerators at a time, what
would the total annual setup cost and holding cost be?
f) If Bud Banis 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 to the current policy of producing 400 in each production run?

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