A company produces to a seasonal demand with the forecast
A company produces to a seasonal demand, with the forecast for the next 12 months as given below. The current labor force can produce 500 units per month. Each employee added can produce an additional 20 units per month and is paid $2000 per month. The cost of materials is $40 per unit. Over time can be used at the usual premium of time and a half for labor up to a maximum of 10 percent per month. The inventory-carrying cost is $50 per unit per year. Changes in the production level cost $100 per unit due to hiring, line changeover costs, and so forth. Assume 200 units of initial inventory.
Extra capacity may be obtained by subcontracting at an additional cost of $20 per unit more than the cost of the firm producing them on regular time.
What plan do you recommend? What is the incremental cost of this plan?
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