Hermit Company manufactures a line of walnut office products. Hermit executives estimate the demand for the double walnut letter tray, one of the company’s products, at 6,000 units. The letter tray sells for $80 per unit. The costs relating to the letter tray are estimated to be as follows for 19X7:

1 Standard manufacturing cost per letter tray unit is $50.00.

2 Costs to initiate a production run are $300.00.

3 Annual cost of carrying the letter tray in inventory is 20% of standard manufacturing cost.

In prior years, Hermit Company has scheduled the production for the letter tray in two equal production runs. The company is aware that the economic order quantity (EOQ) model can be employed to determine optimum size for production runs. The EOQ formula as it applies to inventories for determining the optimum order quantity is shown below.: mk7

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EOQ Required: 2(Annual demand)(Cost per order) (Cost per unit)(Carrying cost) Calculate the expected annual cost savings Hermit Company could experience if it employed the economic order quantity model to determine the number of production runs which should be initiated during the year for the manufacture of the double walnut letter trays.