Pointe au Chien Containers, Inc, manufactures in batches, and the manufactured items are placed in stock
Specifically, the firm is questioning how best to manage a specific wooden crate for shipping live seafood, which is sold primarily by the mail/phone order marketing division of the firm. The firm has estimated that carrying cost is $4 per unit per year. In addition, annual demand = 60,000 units, and setup cost is $300. The firm currently plans to satisfy all customer demand from stock on hand. Demand is known and constant. The production rate is nearly instantaneous.
a. What is the cost minimizing size of the manufacturing batch?
b. What is the total annual holding and setup cost of this solution?
a. The cost-minimizing batch size is Q* = = 3000 crates.
b. This will cost ($300 ) + ($4 ) = $6000 + $6000 = $12,000 per year.
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