Wadley Manufacturing produces casings for stereo sets: large and small. In order to produce the different casings,

Question:

Wadley Manufacturing produces casings for stereo sets: large and small. In order to produce the different casings, equipment must be set up. Each setup configuration corresponds to a particular type of casing. The setup cost per production run—for either casing—is $6,000. The cost of carrying small casings in inventory is $2 per casing per year. The cost of carrying large casings is $6 per year. To satisfy demand, the company produces 150,000 small casings and 50,000 large casings per year.

Required:

1. Compute the number of small casings that should be produced per setup to minimize total setup and carrying costs for this product.

2. Compute the total setup and carrying costs associated with the economic order quantity for the small casings.

Economic Order Quantity
Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs. This production-scheduling model was developed in 1913 by Ford W. Harris and has...