roduction Lot Ibs. ze Q' nnual Inventory dollars olding Cost H nnual Setup Cost dollars otal Annual Cost dollars
Chapter 4. Tyler decides to use the Production Lot Model to estimate the amount of candy he should prepare in advance for selling at his bakery. The sugar candy he creates can last for a long time with proper packaging and is fairly easy to store in inventory if required. He runs some calculations based upon the market demand and his production capacity as follows:
The Production Capacity for sugar candies is 12 lbs. per month
Monthly Demand is estimated at 10 lbs. per month with the demand rate expected to be constant through the year
Cost of setting up the production line (sugar, flavoring, heating equipment, etc.) is expected to be around $10 for raw materials and distribution of work with a lead time of 4 days.
The
The annual holding cost is figured at a 20% rate, which is pretty standard in this business
The number of working days per year are 300.
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