Response to the following problem:
ADM, Inc., a manufacturer of filing cabinets, has an average monthly demand of 500 units for its four-drawer model, ADM-4B. The company's production facility is capable of producing 2000 filing cabinets per month. Because production of each different model of filing cabinet made by the firm requires different stamping tools, the production setup cost to begin producing the four-drawer models is $2000. The firm estimates that the incremental production cost for the four-drawer model is $40 and that its annual holding cost rate is 20%.
ADM wishes to determine how many of the fourdrawer models it should manufacture during each production run and the number of production runs for this model that it should schedule over the upcoming year.