What would the total annual setup cost and holding cost be

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Reference no: EM132250902

Emarpy Appliance is a company that produces all kinds of major appliances. Bud Banis, the president of Emarpy, is concerned about the production policy for the company’s best selling refrigerator. The annual demand has been about 8,000 units each year, and this demand has been constant throughout the year. The production capacity is 200 units per day. Each time production starts, it costs the company £120 to move materials into place, reset the assembly line, and clean the equipment. The holding cost of a refrigerator is £50 per year. The current production plan calls for 400 refrigerators to be produced in each production run. Assume there are 250 working days per year.

a) If the company produces 400 refrigerators at a time, what would the total annual setup cost and holding cost be?

b) If Bud Banis wants to minimize the total annual inventory cost, how many refrigerators should be produced in each production run? How much would this save the company in inventory costs compared to the current policy of producing 400 in each production run?

Reference no: EM132250902

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