Determining Optimum Lot Size by Formula. Kelley Corporation expects to manufacture 100.000 units next year. Its setup costs are $3,000 per production run, and inventory carrying costs average $15 per unit.

a. Use the EOQ formula to determine optimum lot size.

b. Calculate the number of production runs that will be required.

c. Verify the optimum lot size determined in part

(a) by calculating total annual costs for the optimum lot size and for lot sizes one lessor and one greater than optimum. (Hint: Construct a table similar to lixhibit 12-6 for each of the three lot sizes.)