Nowjuice, Inc., produces Shakewell® fruit juice. A planner has developed an aggregate forecast for demand (in cases) for the next six months.
Month May Jun Jul Aug Sep Oct
Forecast 4,000 4,800 5,600 7,200 6,400 5,000
Use the following information to develop aggregate plans.
Regular production cost $10 per case
Regular production capacity 5,000 cases
Overtime production cost $16 per case
Subcontracting cost $20 per case
Holding cost $1 per case per month
Beginning inventory 0
Develop an aggregate plan using each of the following guidelines and compute the total cost for each plan. Which plan has the lowest total cost?
a. Use level production. supplement using overtime as needed.
b. Use a combination of overtime (500 cases per period maximum), inventory, and subcontracting (500 cases per period maximum) to handle variations in demand.
c. Use overtime up to 750 cases per period and inventory to handle variations in demand.