The XYZ Company produces lawn fertilizer. The fertilizer can be produced at a rate of 12,000 pounds per day. Annual demand for the good is 0.8 million pounds per year. The fixed cost of setting up for a production run of the good is $2,200, and the variable cost of production is $3.80 per pound. The company uses an interest rate of 18 percent to account for the cost of capital, and the costs of storage and handling of the chemical amount to 10 percent of the value. Assume that there are 250 working days in a year. 
a. What is the optimal size of the production run? 

b. What proportion of each production cycle consists of uptime and what proportion consists of downtime? 

c. What is the average annual cost of holding and setup attributed to this item? If the fertilizer sells for $4.50 per pound, what is the annual profit the company is realizing from this item?

Answer rating: 100% (QA)

ANSWER a The optimal size of the production run is 1000... View the full answer