Comfy Wheels Bus Company produces buses. In order to produce the seats for the buses, special equipment must be set up. The setup cost per frame is $35. The cost of carrying seats in inventory is $6 per seat per year. The company produces 90,000 buses per year. The number of seats that should be produced per setup in order to minimize the total setup and carrying costs is
A) 933 seats.
B) 2,050 seats.
C) 1,025 seats.
D) 513 seats.

Question

Quizplus · Accepted Answer

The optimal number of seats to produce per setup can be calculated using the EOQ formula:

EOQ = sqrt((2DS)/H)

Where D = annual demand, S = setup cost per order, and H = holding cost per unit per year.

In this case, D = 90,000 (since the company produces 90,000 buses per year), S = $35 (the setup cost per frame), and H = $6 (the holding cost per seat per year). Therefore:

EOQ = sqrt((2 * 90,000 * 35)/6) ≈ 1,025

So the company should produce approximately 1,025 seats per setup in order to minimize the total setup and carrying costs. Therefore, the answer is C.

Comfy Wheels Bus Company Produces Buses