Quarter-inch stainless steel bolts, one-and-one half inches long, are consumed in a factory at a fairly steady rate of 60 per week. The bolts cost the plant 2 cents each. It costs the plant $12 to initiate an order, and holding costs are based on an annual interest rate of 25 percent.
Determine the optimal number of bolts for the plant to purchase and the time between the placement of orders.
What is the yearly setup and holding cost for this item?
Suppose instead of small bolts we were talking about a bulky item such as packaging materials. What problem might there be with your analysis?