An Oximeter manufacturer purchases the displays used in the Oximeter from an overseas supplier. The supplier charges $12 per display and there is an ordering cost of $100 every time an order is placed to the supplier. The items take 3 weeks to arrive after the order is placed. The company is considering whether to make the displays in-house because of the uncertainties in shipment from overseas. The in-house production process for the displays is continuous, occurs at a finite rate and is non-stop throughout the year. Other information about the display production process is shown in Table 1. Table 1: Display Production Process Annual Demand 73,000 units Unit Cost $10 Setup Cost $85 per batch Machine Purchase Cost $5000 Holding cost (13+X) *0.1 percent Daily Production Rate 1,000 units Production Set-up time 15 days Where X is the last digit of your PI number. If your PI number is B1234567, X = 7. (b) If the company decides to make the displays in-house, solve for the optimal batch size. What is the optimal inventory cost? What is the number of days required to produce a batch of display units? What would be the ROL? State any assumptions made
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