Your company sells a product for which the annual demand is 10,000 units. Holding costs are $1.00 per unit per year, and setup costs are $200.00 per order.
a. What is the economic order quantity for your product?
b. What does the total annual EOQ cost?
c. Now suppose that instead of purchasing the product, you decide to produce it yourself. Assume the same demand and cost structure as above. In addition, your average production rate would be 200 units per day, and you have 200 working days per year. What batch size should you use?
d. What is the annual cost of setup and holding from part c?
e. What conclusions can you make regarding the impact of production rate on the holding and setup costs?
