Company ACME has a continuous manufacturing process that can operate 24 hours/day, 7 days a week. It can produce three products: A, B, and C on its production line at the production rates given in the table below. However, ACME will incur a changeover cost whenever it switches from one product to another. The cost is $100 per changeover. ACME has constant demand for each of its products, as given in the table. The holding cost for each product is also given in the table below:
Product
Production rate (barrels/day)
Demand rate (barrels/day)
Holding cost ($/barrel-day)
A
10
5
2
B
15
3
2
C
20
2
2
- If you were to ignore the fact that the three products share a production resource, what is the economic order quantity (or economic order batch) for each product? a= b= c=
- What is the total average cost per day for each product (changeover plus holding cost), assuming we could use the economic order quantity computed in the prior question? a= b= c=
- In reality, the three products share a single production process. Suppose ACME operates with a simple cyclic schedule in which it produces a batch of A, followed by a batch of B, followed by a batch of C, and then idles its process, and then repeats this cycle. A changeover cost is incurred with each switch from one product to another, as well as when the process goes from idle to production of A. What is the length of the cycle that minimizes the total changeover cost and inventory holding cost?
- What is the batch size of each product? Use the optimal cycle length from the question above. a= b= c=
- What is the total average cost per day (changeover cost and inventory holding cost)?
- Suppose now that each changeover takes 12 hours (one-half day) during which no product can be produced. What is the optimal length of the production cycle?
- Given the changeover time of 12 hours and the optimal cycle length calculated from Question 3.6, what is the total cost?