Montegut Manufacturing Produces a Product for Which the Annual Demand

question 54

Essay

Montegut Manufacturing produces a product for which the annual demand is 10,000 units. Production averages 100 per day, while demand is 40 per day. Holding costs are $2.00 per unit per year; set-up costs $200.00. If they wish to produce this product in economic batches, what size batch should be used?
What is the maximum inventory level?
How many order cycles are there per year?
How much does management of this good in inventory cost the firm each year?

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Definitions:

Widgets

are generic terms often used to describe any product or manufactured good in business discussions or economic examples.

Retailers

Businesses that sell goods or commodities directly to consumers.

Perfected

In legal and financial contexts, describes a security interest or claim that has been legally established and recorded, making it enforceable against third parties.

Secured Party

A lender or creditor that has a claim on assets (collateral) of the borrower if the loan is not repaid according to agreed terms.