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The 2M Chemical Company produces a chemical compound that is used as a lawn fertilizer. The compound can be produced at a rate of 9,500 pounds per day. Demand for the compound is 250,000 pounds per six months. The fixed cost of setting up for a production run of the chemical is $1,500 and the variable cost of production is $3.00 per pound. The company uses an annual holding cost rate of 25 percent. Assume there are 250 working days in a year.
What is production lot size that will minimize the total cost?
What is the length of time for a production run?
What is the maximum level of inventory?
What is the total annual cost?
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An analysis of the holding costs, including the appropriate annual holding cost rate.
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