One item produced by a work center has a setup cost of $250 and an annual demand of 20,000. Demand is deterministic and occurs at a constant rate. Raw material costs $1.50, and the completed item is valued at $2.25. The holding cost rate is 0.5 per year. The work center could process 100,000 of these items per year if it did not make anything else. Historically, batches at the work center spend approximately 80% of the time waiting and 20% of the throughput time in process.

[a] Find the batch size that minimizes cost, and

[b]compute the inventory cost per year.

[c] What reorder point should be used to avoid shortages?

For inventory cost, include both FGI and WIP .5 per year = 50% per year Assume that setup time is equal to processing time to make 50 items.