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Exam Code: VMCE2021

Exam Name: VMCE 2021

Version: V15.35

Q & A: 208 Questions and Answers

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What is the number of production runs per year of computer chairs that would minimize the sum of carrying and setup costs for the coming year?
A. 0
B. 1
C. 2
D. 3
Answer: B
The EOQ minimizes the sum of carrying and setup costs. The EOQ is the amount at which carrying costs are equal to setup casts. Thus, plugging the data into the EOQ formula results in the following: C:\Documents and Settings\usernwz1\Desktop\1.PNG

Thus, if each lot consists of 1,000 units, five production runs per year are needed to meet the 5,000-unit demand. At this level, setup costs will total US $5,000 5 x $1,000). Carrying costs will also equal US $5,000 10 per unit carrying cost average inventory of 500 units).
Accordingly, total costs are minimized at US $10,000. Jed Ryerson Computer Furniture, Inc. RCF) manufactures a line of office computer chairs. The annual demand for the chairs is estimated to be 5,000 units. The annual cost tic. hold one unit in inventory is US $10 per year, and the cost to initiate a production run is US $1,000. There are no computer chairs on hand, and RCF has scheduled four equal production runs of computer chairs for the coming year, the first of which is to be run immediately. RCF has 250 business days per year, sales occur uniformly throughout the year, and production start-up is within one day. RCF is considering using the following formula for determining the economic order quantity EOQ):

If: A = cast to initiate a production run per purchase order D = annual unit demand K = cost of carrying one unit per year

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