Question

Montegut Manufacturing produces a product for which the annual

demand is 10,000 units. Production averages 100 per day. The
company operates and experiences demand 250 days per year. Holding
costs are?

Answer 1

Holding costs refer to the costs associated with holding inventory. Montegut Manufacturing has excess inventory, which incurs holding costs.

Step-by-step explanation:

Holding costs refer to the costs associated with holding inventory. In the context of Montegut Manufacturing, holding costs would include expenses such as warehousing, insurance, and depreciation of the inventory. Since the company produces 100 units per day and operates for 250 days per year, the annual production is 25,000 units. However, the annual demand is only 10,000 units. This means that the company has excess inventory of 15,000 units, which incurs holding costs.