Question: The S OP team at Kansas Furniture has received the

The S& OP team at Kansas Furniture has received the following estimates of demand requirements:
July . 1000
Aug . 12000
Sept . 1400
Oct . 1800
Nov . 1800
Dec . 1600

Assuming stock out costs for lost sales of $ 100 per unit, inventory carrying costs of $ 25 per unit per month, and zero beginning and ending inventory, evaluate these two plans on an incremental cost basis:
Plan A: Produce at a steady rate ( equal to minimum requirements) of 1,000 units per month and subcontract additional units at a $ 60 per unit premium cost. .
Plan B: Vary the workforce, to produce the prior month’s demand. The firm produced 1,300 units in June. The cost of hiring additional workers is $ 3,000 per 100 units produced. The cost of layoffs is $ 6,000 per 100 units cut back.

Which plan is best and why?

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  • CreatedMarch 20, 2014
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