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Gnom [1K]
4 years ago
8

The Wood Valley Dairy makes cheese to supply to stores in its area. The dairy can make 344 pounds of cheese per day (359 days pe

r year), and the demand at area stores is 59 pounds per day. Each time the dairy makes cheese, it costs $266 to set up the production process. The annual cost of carrying a pound of cheese in a refrigerated storage area is $1.01. Determine the minimum total annual cost.
Business
1 answer:
djyliett [7]4 years ago
6 0

Answer:

the minimum total annual cost is $3,372.58

Explanation:

<em>Step 1 Calculate the the Optimum Batch Size for Production run</em>

OBS = √(2×Total demand×Set-up Costs)/Holding Cost per unit

       = √(2×59×359×$266)/$1.01

      =   3341

<em>Step 2 Calculate the minimum total annual cost</em>

Total costs = Set up costs + Carrying Costs

<em>                    </em>= (59×359)/3341 × $266 + 3341/2×$1.01

                   = $1,686.37 + $1,687.21

                   = $3,372.58

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