Sulleman and Baring forecast demand for a component at around 2,500 units a year. They make the component internally, and it costs 500 to set up each production run with a variable cost of 30 a unit. Holding costs are 20 percent of value a year and the production rate is 10,000 units a year. There is a lead time of two months from receiving a production requisition until nished units begin to come from the production line. Assuming that shortages are not allowed, what are the optimal batch size and reorder level for the component? What are the costs of this policy? Information about safety stock is not given.

4.4 Sulleman and Baring forecast demand for a component at around 2,500 units a year. They make the component internally, and it costs 500 to set up each production run with a variable cost of 30 a unit. Holding costs are 20 per cent of value a year and the production rate is 10,000 units a year. There is a lead time of two months from receiving a production requisition until finished units begin to come from the production line. Assuming that shortages are not allowed, what are the optimal batch size and reorder level for the component? What are the costs of this policy