What is optimal production run size and total annual cost

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Reference no: EM131732000

Customers at Joe’s Office Supply Store demand an average of 500 desks per month. Each time an order is placed, an ordering cost of $300 is incurred. The annual holding cost for a single desk is 25% of the $200 cost of a desk. The lead time is one week. Assume that there are 52 weeks in a year and 364 working days. Suppose Joe’s is considering manufacturing desks. It costs $250 to set up a production run, and Joe’s has the capacity to manufacture up to 10,000 desks per year. What is the optimal production run size? How many production runs will be made each year? What is the total annual cost?

Reference no: EM131732000

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