EL Computer produces its multimedia notebook computer on a production line that has an annual capacity of 16,000 units. EL Computer estimates the annual demand for this model at 6000 units. The cost to set up the production line is $2345, and the annual holding cost is $20 per unit. Current practice calls for production runs of 500 notebook computers each month.
a. What is the optimal production lot size?
b. How many production runs should be made each year? What is the recommended cycle time?
c. Would you recommend changing the current production lot size policy from the monthly 500-unit production runs? Why or why not? What is the projected savings of your recommendation?