Production set-up is the equivalent of an ordering cost for a manufacturer. This question is talking about Economic Lot Size, which is used by manufacturers to determine how many units they should manufacture in each production run in order to balance their setup costs with the cost of storing their completed inventory. The goal is to minimize both the setup costs and the cost of storing completed inventory while still meeting demand. The calculation of the Economic Lot Size is based on the same equation as is used for Economic Order Quantity, except it uses the setup cost to manufacture a batch of the product instead of the cost to place an order.
Storage and handing are classified as carrying costs.
Insurance and taxes are classified as carrying costs.
Obsolescence and deterioration are classified as carrying costs.
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