If Bud Banis wants to minimize the total annual inventory cost, how many refrigerators should be produced in each production run?

Emarpy Appliance is a company that produces all kinds of major appliances. Bud Banis, the president of Emarpy, is concerned about the production policy for the company’s best-selling refrigerator. The annual demand has been about 8,000 units each year, and this demand has been constant throughout the year.

The production capacity is 200 units per day.

Each time production starts, it costs the company $120 to move materials into place, reset the assembly line, and clean the equipment. (Hint: this is the setup cost.)

The holding cost of a refrigerator is $50 per year (Hint: this is H. No need to calculate i*C).

Assume there are 250 working days per year. (Hint: use this information to either change production capacity to annual capacity, or annual demand to daily demand)

(a) If Bud Banis wants to minimize the total annual inventory cost, how many refrigerators should be produced in each production run? (Hint: total annual inventory cost is the Total Relevant Cost, which is the cost associated with ordering (setup) and holding inventory).

(b) What is the average inventory that Emarpy will carry?

(c) How much will Emarpy spend annually on setup cost and inventory holding cost

(d) If the current plan is to produce 400 refrigerators in a batch, is that the best plan, or can you provide a better plan?