FansForYou is a small, privately owned company that manufactures fans. Large variations in demand due to seasonality have contributed to high costs for the company. FansForYou currently uses a level production strategy because it prefers not to hire and fire employees. However, if there is enough cost justification, the company will consider
alternative production plans.
a. What is the cost of the current production plan?
b. How much would FansForYou save by using a chase demand strategy?
c. How much would FansForYou save by keeping a steady workforce of 20 workers and supplementing with overtime and subcontracting as needed?
Month Demand
September .......1500
October ........1000
November ..........600
December .......600
January ........600
February ..........800
March ........1000
April ..........1000
May ........4000
June ...........6500
July ............6000
August .......4000

Beginning inventory 0
Beginning workforce 25 workers
Production rate 100 fans per worker per month
Regular production cost $40 per fan
Overtime production cost $60 per fan
Subcontracting cost $70 per fan
Overtime capacity Not to exceed regular production
Subcontracting capacity Unlimited
Holding cost $8 per fan
Hiring cost $2000
Firing cost $3000