Aggregate demand for company over next 8 months as follows, where each quantity is measured in cartons.
Jan 1400 may 2200
feb 1600 june 2200
march 1800 july 1800
april 1800 aug 1400
Plan A uses chase strategy by producing the quantity demanded in the prior month. Plan B employs level strategy by producing at constant rate of 1400 cartons per month to meet minimum demands, combined with subcontracting for additional cartons. Both plans begin in jan with 200 cartons on hand and end with zero inventory.
December demand and rate of production are both 1600 cartons per month. Cost of hiring additional workers is $5000 per 100 cartons. cost of laying off workers is $7500 per 100 cartons. Stockout cost of lost sales is $100 per carton. Inventory holding cost is $20 per carton per month. Subcontracting costs $75 per carton.
In plan A, treat initial 200 cartons as a reduction in demand.
In plan B, treat initial 200 cartons as inventory.
1. What is total cost of plan A
2. What is total cost of plan B