Suppose That Your Company Sells a Product for Which the Annual

question 21

Essay

Suppose that 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 per order
(a) What is the economic order quantity for your product?
(b) What is the total annual cost of ordering and holding?
(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) Given your answer to part c, now what is the total annual cost of ordering and holding?
(e) What conclusions can you make regarding the impact of production rate on the holding and ordering costs?

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Definitions:

State

A politically organized territory with a permanent population, defined territory, government, and the ability to enter into relations with other states.

Regressive Tax

A tax system where the tax rate decreases as the taxable amount increases, leading to a higher tax burden on lower-income earners.

Sales Tax

A tax imposed by governments on sales of goods and services, typically a percentage of the sale price paid by the consumer.

Income Rises

An increase in the amount of money received by an individual or household, which can affect purchasing power and economic status.