Nathan Manufacturing, Inc., makes and sells specialty wheels for the retail automobile aftermarket.

Nathan’s forecast for its wire wheels is 1,000 units next year, with an average daily demand of 4 units.

However, the production process is most efficient at 8 units per day. So the company produces 8 per day but uses only 4 per day. The company wants to solve for the optimum number of units per order.

(Note: This plant schedules production of this wheel only as needed, during the 250 days per year the shop operates.)

APPROACH c Gather the cost data and apply Equation (12-7):

Annual demand = D = 1,000 units Setup costs = S = +10 Holding cost = H = +0.50 per unit per year Daily production rate = p = 8 units daily Daily demand rate = d = 4 units daily