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Question
A small bakery sells pies on campus that are produced in-house in a large oven that holds 100 pies. The pies sell at a fairly steady rate of 86 per month, and they cost $2 each to make. Prior to each baking, the oven must be cleaned out, which requires one hour's time for four workers, each of whom is paid $8 per hour. Inventory costs are based on an annual interest rate of 18%. Also, the pies have a shelf life of two months.
How many pies should be baked for each production run? What is the total annual cost under this policy?
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