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Consider a product with a daily demand of 400 units, a setup cost per production run of $100, a monthly holding cost per unit of $2.00, and an annual production rate of 292,000 units. The firm operates and experiences demand 365 days per year.
a) What is the optimum size of the production run?
b) What is the average holding cost per year?
c) What is the setup cost per year?
d) What is the total cost per year if cost of each unit is 5 dollars?
e) Suppose that management mistakenly used the basic EOQ model to calculate the batch size instead of using the POQ model. How much money per year has that mistake cost the company?
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