Ethan, Inc. has seasonal demand for its products and management is considering whether level production or seasonal
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Question:
Ethan, Inc. has seasonal demand for its products and management is considering whether level production or seasonal production should be implemented. The firms short-term interest cost is 8%, and management has developed the following information to make the decision:
| Alternative 1 Level production | Alternative 2 Seasonal production |
Average inventory | $2,000,000 | $1,500,000 |
Production costs | $6,000,000 | $6,050,000 |
Which alternative should be accepted and how much is saved over the other alternative?
At what rate of short-term interest rate would the two alternatives have the same cost?
Related Book For
Operations Management Managing Global Supply Chains
ISBN: 978-1506302935
1st edition
Authors: Ray R. Venkataraman, Jeffrey K. Pinto
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