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Morrison Manufacturing produces casings for sewing machines: large and small. To produce the different casings, equipment must be set up. The setup cost per production run is $18,000 for either casing. The cost of carrying small casings in inventory is $6 per casing per year; the cost of large casings is $18 per unit per year. To satisfy demand, the company produces 2,400,000 small casings and 800,000 large casings.
Required:
Problem 1. What is the reorder point for small casings? Large casings?
Problem 2. Using the economic order batch size, is it possible for Morrison to produce the amount that can be sold of each casing? Does scheduling have a role here? Explain. Is this a push or pull-through system approach to inventory management? Explain
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