The S&OP team at Kansas Furniture, has received the following estimates of demand requirements:
|
July
|
Aug.
|
Sept.
|
Oct.
|
Nov.
|
Dec.
|
|
1,000
|
1,200
|
1,400
|
1,800
|
1,800
|
1,800
|
a) Assuming one-time stock out costs for lost sales of $100 per unit, inventory carrying costs of $25 per unit per month, and zero beginning and ending inventory, evaluate these two plans on an incremental cost basis:
Plan A: Produce at a steady rate (equal to minimum requirements) of 1,000 units per month and subcontract additional units at a $60 per unit premium cost.
Plan B: Vary the workforce, to produce the prior month's demand. The firm produced 1,300 units in June. The cost of hiring additional workers is $3,000 per 100 units produced. The cost of layoff s is $6,000 per 100 units cut back.
b) Which plan is best and why?