Rosss machine shop uses 3,500 brackets during the year, and the usage is relatively constant throughout the year. These brackets are purchased from a supplier for $18 each. The lead time is 2 days. The holding cost is per bracket is $1.80 and the ordering cost per order is $18.75. The shop operates 250 working days per year (5 days per week times 50 weeks).

Now, Ross is considering the making of the brackets in the shop instead of buying them from the supplier. He has determined the setup cost would be $35. He estimates that the shop can build 50 brackets per day once the machine is set to run production. He estimates that the cost of producing each bracket is $15.80. The holding cost is 10% of the bracket production cost, or $1.58.

D = 3,500 units; C_h = 10% of $15.80 = $1.58; C_o = $35

Questions:

1. What is the daily demand rate?
2. What is the optimal production quantity?
3. How long will it take to produce the optimal production quantity?
4. What would be the maximum inventory level and average inventory level?
5. What is the annual holding cost?
6. How many production runs would there be each year?
7. What would be the annual setup cost?