Pawnee Manufacturing produces casings for stereo sets: large and small. In order to produce the different casings, equipment must be set up. Each setup configuration corresponds to a particular type of casing. The setup cost per production run-for either casing-is $6,000. The cost of carrying small casings in inventory is $2 per casing per year. The cost of carrying large casings is $6 per year. To satisfy demand, the company produces 150,000 small casings and 50,000 large casings per year.
Required:
1. Compute the number of small casings that should be produced per setup to minimize total setup and carrying costs for this product.
2. Compute the total setup and carrying costs associated with the economic order quantity for the small casings.