The president of Hill Enterprises, Terri Hill, projects the firm\'s aggregate de
ID: 383502 • Letter: T
Question
The president of Hill Enterprises, Terri Hill, projects the firm's aggregate demand requirements over the next 8 months as follows 1,200 1,700 1,700 1,800 2,300 2,200 1,900 1,400 May June January February March April August Her operations manager is considering a new plan, which begins in January with 200 units on hand and ends with zero inventory. Stockout cost of lost sales is $100 per unit. Inventory holding cost is $20 per unit per month. Ignore any idle-time costs. The plan is called plan B Plan B: Produce at a constant rate of 1,200 units per month, which will meet minimum demands. Then use subcontracting, with additional units at a premium price of $80 per unit. Subcontracting capacity is limited to 1,100 units per month. Evaluate this plan by computing the costs for January through August. In order to arrive at the costs, first compute the ending inventory and subcontracting units for each month by filling in the table below (enter your responses as whole numbers)Explanation / Answer
The completed table is as given below
where, Ending inventory = Ending inventory of previous month + Production + Subcontract units - Demand
To calculate subcontract units, first enter the formula for ending inventory in the above table. Then fill in subcontract units to make ending inventory 0, in the months when ending inventory is negative without subcontract units. Ending inventory in month 1 is 200, so subcontract units in month 1 = 0
Total subcontracting cost = Total subcontract units * subcontracting premium = 4400*80 = $ 352,000
Total inventory carrying cost = Total ending inventory * Inventory holding cost per unit = 200*100 = $ 4,000
Total cost = 352000 + 4000 = $ 356,000
Period Month Demand Production Ending Inventory Subcontract Units 0 December 200 1 January 1,200 1,200 200 0 2 February 1,700 1,200 0 300 3 March 1,700 1,200 0 500 4 April 1,800 1,200 0 600 5 May 2,300 1,200 0 1,100 6 June 2,200 1,200 0 1,000 7 July 1,900 1,200 0 700 8 August 1,400 1,200 0 200Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.