41. A manufacturer of greeting cards must determine the size of production runs for a cer- tain popular line of cards. The demand for these cards has been a fairly steady 2 mil- lion per year, and the manufacturer is currently producing the cards in batch sizes of 50,000. The cost of setting up for each production run is $400. Assume that for each card the material cost is 35 cents, the labor cost is 15 cents, and the distribution cost is 5 cents. The accounting department of the firm has established an interest rate to represent the opportunity cost of alternative investment and storage costs at 20 percent of the value of each card. a. What is the optimal value of the EOQ for this line of greeting cards? b. Determine the additional annual cost resulting from using the wrong production lot size.

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
icon
Related questions
Question
41. A manufacturer of greeting cards must determine the size of production runs for a cer-
tain popular line of cards. The demand for these cards has been a fairly steady 2 mil-
lion per year, and the manufacturer is currently producing the cards in batch sizes of
50,000. The cost of setting up for each production run is $400.
Assume that for each card the material cost is 35 cents, the labor cost is 15 cents, and
the distribution cost is 5 cents. The accounting department of the firm has established
an interest rate to represent the opportunity cost of alternative investment and storage
costs at 20 percent of the value of each card.
a. What is the optimal value of the EOQ for this line of greeting cards?
b. Determine the additional annual cost resulting from using the wrong production lot size.
Transcribed Image Text:41. A manufacturer of greeting cards must determine the size of production runs for a cer- tain popular line of cards. The demand for these cards has been a fairly steady 2 mil- lion per year, and the manufacturer is currently producing the cards in batch sizes of 50,000. The cost of setting up for each production run is $400. Assume that for each card the material cost is 35 cents, the labor cost is 15 cents, and the distribution cost is 5 cents. The accounting department of the firm has established an interest rate to represent the opportunity cost of alternative investment and storage costs at 20 percent of the value of each card. a. What is the optimal value of the EOQ for this line of greeting cards? b. Determine the additional annual cost resulting from using the wrong production lot size.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 6 images

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Practical Management Science
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Business in Action
Business in Action
Operations Management
ISBN:
9780135198100
Author:
BOVEE
Publisher:
PEARSON CO
Purchasing and Supply Chain Management
Purchasing and Supply Chain Management
Operations Management
ISBN:
9781285869681
Author:
Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:
Cengage Learning
Production and Operations Analysis, Seventh Editi…
Production and Operations Analysis, Seventh Editi…
Operations Management
ISBN:
9781478623069
Author:
Steven Nahmias, Tava Lennon Olsen
Publisher:
Waveland Press, Inc.