Question: The cost to set u for producing a standard component is approximately $200. Once set up they can produce at a rate of approximately 500

The cost to set u for producing a standard component is approximately $200. Once set up they can produce at a rate of approximately 500 units/month (6,000 units per year) at a cost of $100 each.

A monthly demand is estimated to be 400 units. If the firm uses 25% annual rate for holding inventory (assume 200 working days per year):

(a) What is the most economical lot size to produce (ERL) ? 

(b) What is the average inventory level (units)? 

(c) What is the inventory rate (i.e., the proportion of production that goes into inventory) ?

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