A manufacturer produces a product which has a demand of 1,000 units per month. The production process runs at a rate of 10,000 units per month. The production process is sequential and product is added to inventory at a uniform rate. It costs $200.00 to set up each time the product is produced, and the unit cost of production is S5.00. The manufacturer plans to meet demand in a timely manner (i. e., no stock outs allowed). a. If the annual inventory carrying cost rate is 0.25, what is the Economic Manufacturing Quantity (EMQ)?
b. If the manufacturer decides to produce the product once every quarter, what penalty is being paid to pursue this policy?