Morrison Manufacturing produces casings for sewing machines: large and small. To produce the different casings, equipment must be set up. The setup cost per production run is $18,000 for either casing. The cost of carrying small casings in inventory is $6 per year; the cost of large casings $18 per unit per year. To satisfy demand, the company produces 2,400,000 small casings and 800,000 large casings. Required: Compute the number of small casings that should be produced per setup to minimize total setup and carrying costs. Compute the setup, carrying, and total costs associated with the economic order quantity for the small casings.
Morrison Manufacturing produces casings for sewing machines: large and small. To produce the different casings, equipment must be set up. The setup cost per production run is $18,000 for either casing. The cost of carrying small casings in inventory is $6 per year; the cost of large casings $18 per unit per year. To satisfy demand, the company produces 2,400,000 small casings and 800,000 large casings. Required: Compute the number of small casings that should be produced per setup to minimize total setup and carrying costs. Compute the setup, carrying, and total costs associated with the economic order quantity for the small casings.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Morrison Manufacturing produces casings for sewing machines: large and small. To produce the different casings, equipment must be set up. The setup cost per production run is $18,000 for either casing. The cost of carrying small casings in inventory is $6 per year; the cost of large casings $18 per unit per year. To satisfy demand, the company produces 2,400,000 small casings and 800,000 large casings.
Required:
- Compute the number of small casings that should be produced per setup to minimize total setup and carrying costs.
- Compute the setup, carrying, and total costs associated with the economic order quantity for the small casings.
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