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36. The president of Value Filters became very enthusiastic about using EOQS to plan the sizes of her production runs, and instituted lot sizing based on EOQ values before she could properly estimate costs. For one particular filter line, which had an annual de- mand of 1,800 units per year and which was valued at $2.40 per unit, she assumed a holding cost based on a 30 percent annual interest rate and a setup cost of $100. Some time later, after the cost accounting department had time to perform an analysis, it found that the appropriate value of the interest rate was closer to 20 percent and the setup cost was about $40. What was the additional average annual cost of holding and setup incurred from the use of the wrong costs?

36. The president of Value Filters became very enthusiastic about using EOQS to plan the sizes of her production runs, and instituted lot sizing based on EOQ values before she could properly estimate costs. For one particular filter line, which had an annual de- mand of 1,800 units per year and which was valued at $2.40 per unit, she assumed a holding cost based on a 30 percent annual interest rate and a setup cost of $100. Some time later, after the cost accounting department had time to perform an analysis, it found that the appropriate value of the interest rate was closer to 20 percent and the setup cost was about $40. What was the additional average annual cost of holding and setup incurred from the use of the wrong costs?

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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36. The president of Value Filters became very enthusiastic about using EOQS to plan the sizes of her production runs, and instituted lot sizing based on EOQ values before she could properly estimate costs. For one particular filter line, which had an annual de- mand of 1,800 units per year and which was valued at $2.40 per unit, she assumed a holding cost based on a 30 percent annual interest rate and a setup cost of $100. Some time later, after the cost accounting department had time to perform an analysis, it found that the appropriate value of the interest rate was closer to 20 percent and the setup cost was about $40. What was the additional average annual cost of holding and setup incurred from the use of the wrong costs?
Transcribed Image Text:36. The president of Value Filters became very enthusiastic about using EOQS to plan the sizes of her production runs, and instituted lot sizing based on EOQ values before she could properly estimate costs. For one particular filter line, which had an annual de- mand of 1,800 units per year and which was valued at $2.40 per unit, she assumed a holding cost based on a 30 percent annual interest rate and a setup cost of $100. Some time later, after the cost accounting department had time to perform an analysis, it found that the appropriate value of the interest rate was closer to 20 percent and the setup cost was about $40. What was the additional average annual cost of holding and setup incurred from the use of the wrong costs?
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