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Consider a company that faces annual demand of 15,000 units of one of their products any given year. Once the equipment is set up (at a cost of $1,200 per set-up) it can produce 1,500 units per month. When the equipment is not producing this product it is set-up differently to produce something else. Each unit cost $10 to make and the cost of holding one unit in inventory is $20 per year.
a) How many days does an optimal production lot take to make?
b) What are the maximum and the average size of the inventory of this product?
c) What is the optimal annual and per-unit set-up cost for this product?
d) What is the holding cost per unit produced?
e) What would happen to the annual holding cost if the demand was to increase to 18,000 units per year?
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