XYZ Ltd. has been using production runs of 105,000 tiles, 10 times per year to meet the demand of 1,050,000 tiles annually. The set-up cost is $5,000 per run and the quarterly holding cost is estimated at 2.5% of the manufacturing cost of $2 per tile. The production capacity of the machine is 350,000 tiles per quarter. The factory is open 350 days per year.

Note 1: Show all your calculations.

Note 2: Round all numbers to 2 decimal places.

1. Calculate the total annual cost of the current policy.

The company considers implementing an economic production lot size (EPLS) model. For this model:

2.Calculate the optimal quantity to produce during one production run.

3.Calculate the total inventory holding cost per year.

4.Calculate the total setup cost per year.

5.What is the length (in days) of the production run?

6.What is the length (in days) of the selling only part of the cycle (with no production)?

7.What production policy (current or EPLS-based) do you recommend? Justify your answer