Chapter 4. Tyler decides to use the Production Lot Model to estimate the amount of candy he should prepare in advance for selling at his bakery. The sugar candy he creates can last for a long time with proper packaging and is fairly easy to store in inventory if required. He runs some calculations based upon the market demand and his production capacity as follows:

• The Production Capacity for sugar candies is 12 lbs. per month
• Monthly Demand is estimated at 10 lbs. per month with the demand rate expected to be constant through the year
• Cost of setting up the production line (sugar, flavoring, heating equipment, etc.) is expected to be around $10 for raw materials and distribution of work with a lead time of 4 days.
• The manufacturing cost per pound of candy is $5.00, which includes wages, electricity costs, and costs of raw materials.
• The annual holding cost is figured at a 20% rate, which is pretty standard in this business
• The number of working days per year are 300

Optimal Inventory Policy
Production Lot Size Q*	120	lbs.
Annual Inventory Holding Cost H	10	dollars
Annual Setup Cost O	10	dollars
Total Annual Cost TC	620	dollars
Maximum Inventory Level	20	lbs.
Average Inventory Level	10	lbs.
Reorder Point r	1.6	lbs.
Number of Orders per Year (D/Q*)	1
Cycle Time (Days) T	300	days

1. Provide a sentence explaining how Tyler should plan to produce the candy in his bakery based on the information he obtained from the Production Lot model above: how much to produce and when to produce.