Flavin Cosmetics produces 80,000 tubes of lipstick monthly.Itcurrently purchases the cases used in its lipsticks from McGraw Metals.The cases cost Flavin $.045 each and the cost to place an order with McGraw is estimated to be $150.Approximately a half percent of all cases delivered by McGraw are defective so that Flavin must order 80,402 (80,000/.995) cases to support its production. Flavin is considering producing the cases in-house.It can do this by leasing a casing machine at a cost of $9,000 per year which is
capable of producing 200,000 tubes per month.The production set up cost to use this machine is $200 and the incremental production cost of cases is $.038.In this case, there will be no defective cases.
Flavin estimates its holding cost rate for cases is 20% whether they are purchased or produced in-house.
A.Determine whether Flavin should continue to purchase cases from McGraw or begin in-house production if their objective is to minimize the cost of lipstick production.
B.What is Flavin's optimal purchase or production quantity?

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The Answer of Flavin Cosmetics produces 80,000 tubes of lipstick monthly.Itcurrently purchases the cases used in its lipsticks from McGraw Metals.The cases cost Flavin $.045 each and the cost to place an order with McGraw is estimated to be $150.Approximately a half percent of all cases delivered by McGraw are defective so that Flavin must order 80,402 (80,000/.995) cases to support its production. Flavin is considering producing the cases in-house.It can do this by leasing a casing machine at a cost of $9,000 per year which is
capable of producing 200,000 tubes per month.The production set up cost to use this machine is $200 and the incremental production cost of cases is $.038.In this case, there will be no defective cases.
Flavin estimates its holding cost rate for cases is 20% whether they are purchased or produced in-house.
A.Determine whether Flavin should continue to purchase cases from McGraw or begin in-house production if their objective is to minimize the cost of lipstick production.
B.What is Flavin's optimal purchase or production quantity?

Flavin Cosmetics Produces 80,000 Tubes of Lipstick Monthly