A company produces to seasonal demand, with the forecast for the next 12 months as given below. Month Demand January 600 February 700 March 800 April 700 May 600 June 500 July 600 August 700 September 800 October 900 November 700 December 600 The present labor force can produce 500 units per month. Each employee added can produce an additional 20 units per month and is paid $1000 per month. The cost of materials is $30 per unit. Overtime can be used at the usual premium of time and a half for labor up to a maximum of 10 percent per month. Inventory-carrying cost is $50 per unit per year. Changes in 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 $15 per unit over and above the company's producing them itself on regular time. Provide a detailed cost breakdown for using a level vs. a chase strategy to meet the increased demand. Which strategy do you recommend? How much savings would result from the plan you recommend?

Answer rating: 100% (QA)

Level vs a Chase Strategy COSTS Inventory Beginning Inventory 200 units Assumption 1 s... View the full answer