Suppose That a Plant Manager Uses Economic Batch Sizes for Production

question 110

Multiple Choice

Suppose that a plant manager uses economic batch sizes for production of a product. Suppose further that the setup cost is $50 per batch, the holding cost per unit per year is $10, the annual demand is 30,000 units, the firm operates (and experiences demand) 300 days per year, and the production rate per day is 1000 units. What will be the maximum inventory level that this product ever reaches?

• A) 577
• B) 30
• C) 519
• D) 27,000
• E) 58

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Definitions:

Salvage Value

The foreseen redemption value of an asset after its period of usability concludes.

Useful Life

The estimated time period that an asset is expected to be usable for its intended purpose.

Equipment Cost

The total amount spent to acquire, install, and prepare equipment for its intended use, including purchase price and associated expenses.

Periodic Depreciation

The allocation of the cost of a tangible asset over its useful life in a periodic manner, typically done for accounting and tax purposes.