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Gardening Magic produces quality gardening tools for the home gardener. Its production capacity for a certain gardening tool is 16,000 units. Gardening Magic estimates the annual demand for this tool at 6,000 units. The cost to set up the production line is $2,345, and the annual holding cost is $20 per unit. Currently, Gardening Magic produces 500 of these tools each month.
1. What is the optimal production lot size?
2. How many production runs should be made each year? What is the recommended cycle time?
3. Would you recommend changing the current production lot size from the monthly 500-unit run? Why or why not?
4. What is the projected savings of your recommendations from Question 3 in dollars? And the projected savings as a percentage?
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