Question: Platters Plus wants to determine the most cost efficient production run for their dinner plates. This quantity should minimize the carrying costs of inventory and

Platters Plus wants to determine the most cost efficient production run for their dinner plates. This quantity should minimize the carrying costs of inventory and the setup costs of production. Management also wants to avoid stock-outs because this disrupts retail sales and creates rush orders which disrupt production of other dinnerware pieces. The following information is available:

Annual demand for dinner plates....................................240,000

Average daily demand for dinner plates.................................800

Maximum daily demand for dinner plates..............................896

Carrying cost per dinner plate...................................................$0.26

Setup costs............................................................................$150

Lead time....................................................................................5 days

Required:

A. Calculate the economic production batch size.

B. Calculate the safety stock.

C. Calculate the re-order point (the inventory level when a new setup should be started). Discuss any potential problems with the timing of this re-order point.

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