Re: Efficiency Gains$/$Cost Control Projects TechSavvy is excited that your firm consents to advise us on our efforts to improve inventory cost controls. As discussed in our initial meeting, the personal electronics accessory market is very competitive. Every efficiency gain increases our bottom line as we pursue ways to address the impact of market saturation on profitability. Background: TechSavvy operates with a centralized warehouse system, storing our inventory and distributing products to various retail outlets across the country. With the flat but steady demand for the SoundWave $"$ headphones, the management team is keen on optimizing their production and inventory process to strike a balance between production setup costs and holding inventory. Problem: TechSavvy's production for the Sound Wave headphones doesn't happen continuously but in batches. Our objective is to control associated costs. We are likely not going to increase our topline significantly. Therefor, we must control our costs to improve profitability. What can we do to improve cost control when determining batch sizes for the product. Production data: $1.$ Annual demand for SoundWave headphones: $50,000$ units. $2.$ Unit cost of the headphones:

$$199$

$.3.$ Production setup cost: Setup for each batch run includes equipment cleaning, retooling, and downtime for workers at a total of

$$120$

per order setup. $4.$ Annual holding cost per unit:

$5\%$

of the unit cost. $5.$ Office operational days: $275$ days per year. $6.$ Time taken to ready each order: $5$ days. $7.$ Annual production rate: $400$ units$/$operational day $($This is the rate at which SoundWave$*$ headphones are produced once the production begins$).$ Please propose a solution that enables cost optimization by way of producing batches which meet demand but does not result in excess inventory or inefficient holding costs.