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41. A manufacturer of greeting cards must determine the size of production runs for a cer- tain popular line of cards. The demand for these cards has been a fairly steady 2 mil- lion per year, and the manufacturer is currently producing the cards in batch sizes of 50,000. The cost of setting up for each production run is $400. Assume that for each card the material cost is 35 cents, the labor cost is 15 cents, and the distribution cost is 5 cents. The accounting department of the firm has established an interest rate to represent the opportunity cost of alternative investment and storage costs at 20 percent of the value of each card. a. What is the optimal value of the EOQ for this line of greeting cards? b. Determine the additional annual cost resulting from using the wrong production lot size.

41. A manufacturer of greeting cards must determine the size of production runs for a cer- tain popular line of cards. The demand for these cards has been a fairly steady 2 mil- lion per year, and the manufacturer is currently producing the cards in batch sizes of 50,000. The cost of setting up for each production run is $400. Assume that for each card the material cost is 35 cents, the labor cost is 15 cents, and the distribution cost is 5 cents. The accounting department of the firm has established an interest rate to represent the opportunity cost of alternative investment and storage costs at 20 percent of the value of each card. a. What is the optimal value of the EOQ for this line of greeting cards? b. Determine the additional annual cost resulting from using the wrong production lot size.

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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41. A manufacturer of greeting cards must determine the size of production runs for a cer- tain popular line of cards. The demand for these cards has been a fairly steady 2 mil- lion per year, and the manufacturer is currently producing the cards in batch sizes of 50,000. The cost of setting up for each production run is $400. Assume that for each card the material cost is 35 cents, the labor cost is 15 cents, and the distribution cost is 5 cents. The accounting department of the firm has established an interest rate to represent the opportunity cost of alternative investment and storage costs at 20 percent of the value of each card. a. What is the optimal value of the EOQ for this line of greeting cards? b. Determine the additional annual cost resulting from using the wrong production lot size.
Transcribed Image Text:41. A manufacturer of greeting cards must determine the size of production runs for a cer- tain popular line of cards. The demand for these cards has been a fairly steady 2 mil- lion per year, and the manufacturer is currently producing the cards in batch sizes of 50,000. The cost of setting up for each production run is $400. Assume that for each card the material cost is 35 cents, the labor cost is 15 cents, and the distribution cost is 5 cents. The accounting department of the firm has established an interest rate to represent the opportunity cost of alternative investment and storage costs at 20 percent of the value of each card. a. What is the optimal value of the EOQ for this line of greeting cards? b. Determine the additional annual cost resulting from using the wrong production lot size.
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