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A flour mill produces general purpose baking flour in 100 lb. bags. Demand for this product is 25 tons per day. The capacity for producing the product is 50 tons per day. Setup for a “run” to make the flour costs $100, and storage and handling costs are S4 per ton a year. The firm opcrates 250 days a year. (Hint: 1 ton – 2000 lbs, and you should work the problem in “bags) Answer each of the following in the space provided:
1. How many bags per un are optimal? (3 points)
2. What would the average inventory be for this lot size? (2 points)
3. Determine the approximate length of a production run, in days. (I point)
4. About haw many runs per year would there be? point)
5. How much could the company save annually if the setup cost could be reduced to $50 per run?
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