Karen’s chocolate company produces specialty chocolate at a rate of 6750 grams per month. She supplies the Row House bar to local hotels at a steady rate of 100 bars per month (each bar is 45 grams). The cost to prepare the equipment to make the Row House bar is $15; annual holding costs are $1.50 per gram. Karen operates the production facility 240 days a year (20 days a month).
a) What is the optimal quantity for a production run? Indicate the quantity in grams and number of bars.
b) How many production runs are there a year based on the optimal quantity in a)?
c) Karen has just purchased a new refrigeration system; consequently, her annual holding costs have increased to $2.66 per gram. What is the new optimal production quantity (in both grams and number of bars)? How many production runs a year is there now?