the f repens the f repens the f repens the f repens 1 Exercise 20.10 EoO with Se
ID: 2585060 • Letter: T
Question
the f repens the f repens the f repens the f repens 1 Exercise 20.10 EoO with Setup Costs Morrison Manufacturing produces casings for sewing machines: large and small. To produce the different casings, equipment must be set up. The setup cost per production run is $18,000 for either casing. The cost of carrying small casings in inventory is $6 per casing per year; the cost of large casings is $18 per unit per year. To satisfy demand, the company produces 2,400,000 small casings and 800,000 large casings. Required: 1. Compute the number of small casings that should be produced per setup to minimize total setup and carrying costs. Compute the setup, carrying, and total costs associated with the economic order quantity for the small casings. 2.Explanation / Answer
(1) Number of Small casings that should be produced per setup Economic order Quantity = Square root of [(2*Annual Demand * Set up cost)/Carrying cost] Annual Production Small casings =2,400,000 Setup cost =$18000 carrying cost =$6 EOQ = Square root of [(2*2,400,000*18000)/6] =Square root of (14,400,000,000) =120,000 batch size for small casings =120,000 (2) Computation of Set up cost, Carrying cost and Total costs Set up cost =$18000* (2400,000/120,000) =$360,000 Carrying cost =Carrying cost per small casings * EOQ /2 =$6*120000/2=$360,000 Total cost =Setup cost + carrying cost =$360,000+$360,000=$720,000
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