Problem 11-11 (LO 11-06, 11-7) A small textile company makes... A small textile company makes several types of sweaters. Demand is very seasonal, as shown by the following quarterly demand estimates. Demand is estimated in terms of standard hours of production required. Forecast Fall 10,000 Winter 15,000 Spring 9,000 Summer 5,000 An hour of regular time costs the company $12. Employees are paid $18 per hour on overtime, and labor can be subcontracted at $14 per hour. A maximum of 1,000 overtime hours is available in any month. A change in the regular level of production (increase or decrease) incurs a one-time cost of $5 per hour for adding or subtracting an hour of labor. It costs 2 percent per month to carry an hour of finished work in inventory. Materials and overhead costs in inventory are equal to the direct labor costs. At the beginning of the fall quarter, there are 5.000 standard hours in inventory and the workforce level is equivalent to 10,000 standard hours. a. Suppose management sets the level of regular workers for the year equal to the average demand and subcontracts out the rest. What is the cost of this strategy? Fall 10,000 9,500 Winter 15,000 9,500 D Spring 8.000 9.500 0 Summer 5,000 9,500 0 Demand (Hours) Regular Hours Overtime Hours Subcontract Hours Ending Inv. (Hours) Ending Inv. (5) 0 0 1,000 0 4,500 108,000 1,500 36.000 6,000 144,000 0 114,000 114,000 0 Costs: Regular Hours Overtime Hours Subcontract Change in Production Level Inventory Carrying Cost Total 0 114,000 0 14,000 0 114.000 0 0 0 0 0 0 0 6,480 122,980 0 120,000 2.180 116.160 8,640 122,640 The total cost for the year using the level strategy is $ 487,280 b. What is the cost of a chase strategy? Fall 10,000 Winter 15,000 Spring 8.000 Summer 5,000 Demand (Hours) Regular Hours Costs: Regular Hours Change in Production Level Inventory Carrying Cost Total The total cost for the year using the chase strategy is