The setup cost to make a carpet is $20 per setup.The holding cost is $2.00 per yard per year,and the annual demand is 12,000 yards.The manufacturing facility operates 300 days,and 120 yards of the carpet are produced per day.Given this information,which of the following statements is true?
A)The maximum inventory is 600.
B)The maximum inventory is 500.
C)The maximum inventory is 400.
D)The maximum inventory is 300.

Question

Quizplus · Accepted Answer

To calculate the maximum inventory, we can use the formula:

Max Inventory = (setup cost per order / holding cost per unit per year) * (annual demand / production per day)

= (20 / (2 * 1)) * (12,000 / (300 * 120))

= 400

Therefore, the maximum inventory is 400, so option C) is true.

The Setup Cost to Make a Carpet Is $20 Per