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# WAGNER FABRICATING COMPANY

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by

## Won Wook Kim

on 18 May 2015

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#### Transcript of WAGNER FABRICATING COMPANY

Case Problem 1
WAGNER FABRICATING COMPANY
Holding Cost
Cost of capital 14%

Taxes/Insurance + Shrinkage + Warehouse overhead (24000 + 9000 + 15000) / 600000
8%

Annual rate
22%
Holding Cost 0.22(18) =
3.96
Ordering Cost
2 hours * 28 = 56

Other expenses (2,375/125) 19

Ordering Cost =
75
(56 + 19)
Setup Cost
\$50 per hour, and a full eight-hour
Setup Cost =
400
(50*8)
Order from Supplier - EOQ model

Ch = 0.22(18) =
3.96

EOQ(Q*) = √(2CoD/Ch) = √(2(75)3200/3.96)
=
348.16

Number of orders = D/Q*(3200/348.16) =
9.19

Cycle time = 250(Q*)/D = 250(348.16)/3200
=
27.2 days
Ordering Supplier
Ordering Supplier
Stock out = 1/9.19 = 0.1088

Reorder point(r) = 64 + 1.24(10) =
76.4

Safety stock = 76.4 - 64 =
12.4

Maximum inventory = Q* + 12.4 =
360.56

Average inventory = Q*/2 + 12.4 =
186.48

Annual holding cost = 186.48(3.96) =
738.46

Annual ordering cost = 9.19(75) =
689.35

Purchase cost = 3200(\$18) =
57,600

Total annual cost =
59,027.81
Manufacture - Production lot size model

Ch = 0.22(17) =
3.74

P = 1000(12) =
12,000

Economic production lot size(Q*)
= √(2CoD/(1-D/P)Ch)
= √(2(400)3200/(1-3200/1200)3.74)
=
966.13

Number of production runs = D/Q* =
3.31

Cycle Time = 250(Q*)/D = 250(966.13)/3200
=
75.48
Manufacture
Manufacture
Stock out = 1 / 3.31 = 0.3021

Reorder point(r) = 128 + 0.52(20) =
138.4

Safety stock = 138.4 - 128 =
10.4

Maximum inventory = (1 - 3200/12000)966.13
+ 10.4 =
718.89

Annual holding cost = (354.25 + 10.4)(3.74)
=
1363.79

Annual set up cost = 3.31(400) =
1324

Manufacturing cost = 3200(17) =
54,400

Total Annual Cost =
57,087.79

Recommendation
A[\$59,027.81] - B[\$57,087.79]

=
\$1,939.14 (3.3%) saving
Full transcript