of 560 u The Johnson Company manufactures cxpensive medical diagnostic cquipment
ID: 375550 • Letter: O
Question
of 560 u The Johnson Company manufactures cxpensive medical diagnostic cquipment. It plans to mect all of its projected demand (given below for the next year by quarter). The firm plans to use a constant production rate of 560 unitsiqu are $24.000 per unit and holding costs are $1,650 per quarter per unit. Assume no on-hand inventory exists at the beginning of Quarter 1 uarter Production c osts a. Find the regular production and ending inventory. (Lcave no cells blank-be certain to enter "O" wherever required.) wherever requ Quarter Demand Production 675 675 560 2.240 Total b. What is the cost of this production plan?Explanation / Answer
Please find below the filled up table as required:
QUARTER
DEMAND
REGULAR PRODUCTION
ENDING INVENTORY
1
330
560
230
2
675
560
115
3
675
560
0
4
560
560
0
TOTAL:
2240
2240
It may be noted that :
For quarter 1 : Ending Inventory = Regular Inventory - Demand
For quarter 2, 3 ,4 :
Ending inventory for period t = Regular production quantity of 560 + Ending Inventory from period t-1 – Demand for period t
Total production cost = $24,000 / unit x 2240 units = $53760000
Total holding cost = $1650 per quarter per unit x ( 230 + 115) as total inventory = $1650 x 345 = $569,250
Cost of this production plan = $53760000 + 569250 = $54329250
TOTAL COST = $54329250
QUARTER
DEMAND
REGULAR PRODUCTION
ENDING INVENTORY
1
330
560
230
2
675
560
115
3
675
560
0
4
560
560
0
TOTAL:
2240
2240
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