Please read the case of "Blanchard Importing and Distributing Co., Inc." carefully, excluding the section titled "Scheduling System Used." Here is some background information:

Blanchard's production is organized as a series of bottle runs (i.e., batches). The previous Harvard intern, Mr. Hank Hatch, attempted to optimize production planning using the EOQ model for each product. The intern estimated the setup cost per bottle run (S) and the inventory holding cost (H) of each product, and applied them to the EOQ formula:

\[ \text{EOQ} = \sqrt{\frac{2DS}{H}} \]

However, the EOQ calculation was incorrect because the estimates for both the setup cost per bottle run (S) and inventory holding cost (H) were inaccurate. You are invited to critique and correct the calculation. Answer the following questions and articulate your reasoning and analysis.

Part 1:
In Exhibit 2, Blanchard currently breaks down the setup cost per bottle run as follows:

\[ S = (\text{blending setup cost}) + (\text{size changeover cost}) + (\text{label changeover cost}) + (\text{order processing cost}) \]

These four cost items account for the labor cost incurred for each of the four activities of setting up a bottle run. However, the previous intern systematically overestimated the true setup cost per bottle run by including labor costs that are irrelevant to the production quantity per batch decision (i.e., the size of the bottle run).

Please discuss your recommendations for correcting this calculation and explain your reasoning.

The inventory holding cost per unit per year is given by:

\[ H = C \times K \]

where \( C \) is the cost of producing one unit of product and \( K \) is the carrying cost percentage. However, the estimation of the values of \( C \) and \( K \) are inaccurate due to misconceptions in the original rationale behind the current formula. Please provide your recommendations for correcting these calculations.