A firm wants to develop a level material use schedule based on the following data. What should be the setup cost? Desired lot size: 60 Annual demand: 40,000 Holding cost: $20 per unit per year Daily production rate: 320 Work days per year: 250

Answer: set up cost is $-111.6 ~ $ - 112.

Explanation:

In determining the set up costs, the formula used is (Q ^ 2 * H[1 - d : P]) : 2 * D

where;

Q represents Desired lot size

H represents Holding Cost

D represents Annual Demand

P represents Daily production

Therefore, (60 ^ 2 * 20[1 - 40,000 : 320] : 2 * 40,000)

= 72,000[ 1 - 125] : 80,000

= 72,000[ - 124] : 80,000

= - 8,928,000 : 80,000

=$ - 111.6 is the set up cost.