A chemical firm produces sodium bisulfate in 100-pound bags. Demand for this product is 20 tons per day. The capacity for producing the product is 50 tons per day. Set up costs $100, and storage and handling costs are $5 per ton a year. The firm operates 200 days a year. (Note: 1 ton = 2,000 pounds).
a) How many bags per run are optimal?
b) What would the average inventory be for this lot size?
c) Determine the approximate length of a production run, in days.
d) About how many runs per year would there be?
e) How much could the company save annually if the setup cost could be reduced to $25 per run?