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Unformatted text preview: IEOR 150, Fall 2010 Suggested Solution to Sample Midterm 1 1. (a) We have the demand rate = 800 250 = 200000 units per year, the production rate P = 1800 250 = 450000 units per year, the setup cost K = $18000 per production run, the production cost c = $20 per unit, the annual interest rate I = 0 . 015 12 = 0 . 18, the annual holding cost h = Ic = $3 . 6 per unit, and the annual effective holding cost h = h (1 P ) = $2 per unit. The optimal production lot size is thus Q * = r 2 K h = 60000 units . The corresponding production cycle time is T * = Q * = 0 . 3 years . (b) What fraction of the time is the company producing PCs? Let T 1 be the length of the uptime in a production cycle, we have T 1 T = P = 44 . 44% . (c) Since T = 0 . 3 years and T 1 T = 0 . 4444, we have T 1 = 0 . 1333 years. This implies H = ( P ) T 1 = 33333 . 33 units and the maximum dollar investment in inventory is Hc = $666666 . 67....
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This document was uploaded on 01/13/2011.
 Fall '09

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