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Father's Cookies produces chocolate-chip cookies in a large oven that holds up to 2,000 pounds of cookies at a time. Annual demand is constant at 200,000 pounds; variable cost is $.25 per pound. Oven cleanout is required after the oven processes 2,000 or fewer pounds in a batch (i.e., each time the oven is used); the cleanout takes one hour's time for four workers, each of whom is paid $7 per hour.
Assume that multiple batches can be produced one after the other (i.e., production is not capped at 2,000 lbs). For example, at t=0 multiple batches can be produced nearly instantaneously; however, each batch will require a cleanout. The inventory holding cost is 20 percent per dollar per year; spoilage occurs if inventory is held by Father's Cookies more than 12 months. There is substantial unused oven capacity. In what quantity should these cookies be produced? Why?
The following are monthly actual and forcasted demand level for may through December for units of product manufactured by N. Month Actual demand Forecast demand May 100 102
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