Question

A company produces and sells 10,125 desks each year. Each production run has a fixed cost of $500 and an additional cost of $15 per desk. To store a desk for a full year costs $8. What is the optimal number of desks the company should make during each production run

Answer 1

500 desks company should make during each production run.

Lets simplify the problem through simple steps given in the image:

Yearly Working cost = ( 200+ 5x) * 250/x

Total cost = 2x +  ( 200+ 5x) * 250/x

Total cost = 2x + 5000/x + 12500

Using minimum cost = 2- 500000/x^2 = 0

x^2 = 250000

x = 500

Hence 500 desks company should be made to run.