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Hold/Set Up Cost

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The manufacturing company operates 300 days per year. It has orders for about 12,000 units per year and has the capability of producing 100 units per day. Set up cost is $50.00. The cost of each unit is $1.00. The holding cost is 10 cents per year.

A.What is the average holding cost per year?
B.What is the average set up cost per year?
C.What is the optimal size of the production run?
D.What is the total cost per year, including cost of goods sold?

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Solution Summary

The expert examines a hold/set up cost for a manufacturing company operating.

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Demand = 12,000

Capacity = 100 x 300 = 30,000 units

EPQ = SQRT ( 2 x demand x set up cost / ( holding cost x ( 1 - demand rate / production rate))

= SQRT ( 2 x 12000 x 50 / ( .10 x ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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