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    Estimated Total Carrying Cost and Setup Cost for Flag Displays

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    Liberty Celebrations, Inc., manufactures a line of flags. The annual demand for its flag display is estimated to be 100,000 units. The annual cost of carrying one unit in inventory is $1.60, and the cost to initiate a production run is $30. There are no flag displays on hand but Liberty had scheduled 60 equal production runs of the display sets for the coming year, the first of which is to be run immediately. Liberty Celebrations has 250 business days per year. Assume that sales occur uniformly throughout the year and that production is instantaneous.

    If Liberty Celebrations does not maintain a safety stock, the estimated total carrying cost for the flag displays for the coming year is the estimated total setup cost for the flag displays for the coming year is

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    Solution Preview

    Daily sales = 100000/250 = 400 units
    Average units in inventory = Production run / 2 + Safety ...

    Solution Summary

    This solution assists in determining the estimated total carrying cost and setup cost for flag displays.