Return to the FlexMan data in Exercise 4. The company has signed a service-level agreement with its customers and committed to carry safety inventory from one month to the next that equals at least 15 percent of the following month’s demand. Thus, FlexMan is committed to carrying over at least routers and

in inventory from December to January.

a. Assuming no backlogs, no subcontracting, no layoffs, and no new hires, what is the optimum production schedule for FlexMan? What is the annual cost of this schedule?

b. How much does the service contract mandating minimum inventories increase costs for FlexMan?

c. What would be the increase in cost if FlexMan agreed to a 15 percent minimum for switches but only a 5 percent minimum for routers? What would be the increase in cost if FlexMan agreed to only a 5 percent minimum for switches but a 15 percent minimum for routers? Which of the two is better for FlexMan?

0.15 x 1,800,000 = 270,000 0.15 x 1,600,000 = 240,000