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PRACTICE PROBLEM
Barena Corp. produces fireworks in various forms. A cardboard tube, Part No. M-2, is
manufactured rather than ordered from an outside supplier. The company estimates that its
need each year for this tube is 4,800 gross and that variable manufacturing costs are P60 per
gross. Setup costs amount to P162 per production run, and storage costs are equal to 5% of
variable manufacturing costs.
REQUIRED:
Determine the optimal size of a production run and the total annual setup cost and total
carrying cost at that size.
Given: