(Appendix: EPR) Gale’s Garden grows and sells a variety of indoor and outdoor plants and garden vegetables. One of the firm’s more popular vegetables is a red onion, which has an annual sales quantity of approximately 30,000 pounds. Two of the major inputs in the growing of onions are seeds and fertilizer. Due to the poor germination rate, two seeds must be purchased for each onion plant grown (a mature onion plant provides 0.5 pound of onion). Also, 0.25 pound of fertilizer is required for each pound of onion produced. The following information summarizes costs for onions, seeds, and fertilizer. Carrying costs for onions are expressed per pound of onion; carrying costs for seeds are expressed per seed; and for fertilizer, carrying costs are expressed per pound of fertilizer. To plant onions, the company incurs a cost of $50 to set up the planter and the fertilizing equipment.
a. What is the economic production run for onions?
b. How many production runs will Gale’s Garden make for onions annually?
c. What are the economic order quantities for seeds and fertilizer?
d. How many orders will be placed for seeds? For fertilizer?
e. What is the total annual cost of ordering, carrying, and setting up for onion production?
f. How is the planting of onions similar to and different from a typical factory production run?
g. Are there any inconsistencies in your answers to (a)–(c) that need to be addressed? Explain.