Finding economical lot size, carrying and annual costs
80,000 units per year. Each widget sells for $100, and it costs 30 percent to
carry widgets in inventory for a year. The process of widget production has
been automated over the years, and it now costs $1,000 to change over the
widget production line to other products which are made on the same line.
a. What is the economical lot size for production of
widgets?
b. How many lots will be produced each year?
c. What is the annual cost of carrying widgets and the
annual cost of changeover?
d. What factors or changes in assumptions might cause the
Widget Company to produce a larger lot than the economic lot size calculated in
part a?
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