Southeast Soda Pop, Inc., has a new fruit drink for which it has high hopes. John Mittenthal, the production planner, has assembled the following cost data and demand forecast:
Costs/ Other Data
Previous quarter’s output = 1,300 cases
Beginning inventory = 0 cases
Stockout cost = $ 150 per case
Inventory holding cost = $ 40 per case at end of quarter
Hiring employees = $ 40 per case
Terminating employees = $ 80 per case
Subcontracting cost = $ 60 per case
Unit cost on regular time = $ 30 per case
Overtime cost= $ 15 extra per case
Capacity on regular time = 1,800 cases per quarter
John’s job is to develop an aggregate plan. The three initial options he wants to evaluate are: .
Plan A: a chase strategy that hires and fires personnel as neces-sary to meet the forecast. . Plan B: a level strategy. .
Plan C: a level strategy that produces 1,200 cases per quarter and meets the forecast demand with inventory and subcontracting.
a) Which strategy is the lowest- cost plan?
b) If you are John’s boss, the VP for operations, which plan do you implement and why?