Figure 24-3
Cozy Stoves produces wood-burning stoves. In order to produce the frames for the stoves, special equipment must be set up. The setup cost per frame is £40. The cost of carrying frames in inventory is £5 per frame per year. The company produces 100,000 stoves per year.
-Refer to Figure 24-3. Cozy Stoves' total setup costs associated with the economic order quantity are

Question

Quizplus · Accepted Answer

To calculate the total setup cost associated with the economic order quantity, we need to use the formula:

Total Setup Cost = (2 x Annual Demand x Setup Cost per Frame) / Order Quantity

Plugging in the given values, we get:

Order Quantity = √((2 x 100,000 x £40) / £5) = 1,260 frames

Total Setup Cost = (2 x 100,000 x £40) / 1,260 = £3,162

Therefore, the best choice is C, with a total setup cost of £3,162.

Figure 24-3 Cozy Stoves Produces Wood-Burning Stoves. in Order to Produce the Produce