Morrison Manufacturing produces casings for sewing machines: large and small. To produce the different casings, equipment must be set up. The setup cost per production run is $18,000 for either casing. The cost of carrying small casings in inventory is $6 per casing per year; the cost of large casings is $18 per unit per year. To satisfy demand, the company produces 2,400,000 small casings and 800,000 large casings.
Required:
1. Compute the number of small casings that should be produced per setup to minimize total setup and carrying costs.
2. Compute the setup, carrying, and total costs associated with the economic order quantity for the small casings.