Crate Furniture, Inc., a firm that produces rustic furniture, desires to move toward a reduced lot size.

Crate Furniture’s production analyst, Aleda Roth, determined that a 2-hour production cycle would be acceptable between two departments. Further, she concluded that a setup time that would accommodate the 2-hour cycle time should be achieved.

APPROACH c Roth developed the following data and procedure to determine optimum setup time analytically:

D 5 Annual demand 5 400,000 units d 5 Daily demand 5 400,000 per 250 days 5 1,600 units per day p 5 Daily production rate 5 4,000 units per day Qp 5 EOQ desired 5 400 (which is the 2-hour demand; that is, 1,600 per day per four 2-hour periods)

H 5 Holding cost 5 $20 per unit per year S 5 Setup cost (to be determined)

Hourly labor rate 5 $30.00