A Kensington Company is planning production for the next 4 quarters. They want t

Question

A Kensington Company is planning production for the next 4 quarters. They want to minimize the cost of production. The production cost is stable but demand and production capacity vary from quarter to quarter. The maximum amount of inventory which can be held is 12,000 units and management wants to keep at least 3,000 units on hand. Quarterly inventory holding cost is 3% of the cost of production. The company estimates the number of units carried in inventory each month by averaging the beginning and ending inventory for each month. There are currently 5,000 units in inventory. The company wants to produce at no less than one half of its maximum capacity in any quarter.

a) What formula should be entered in cell C18 in the accompanying Excel spreadsheet to compute the quarterly carrying costs?  (Click to select)  =C15*(C3+C6)  =C15*(C3+C6)/2  =C15*C3/2  =C15*C3+C6

b) What formula should be entered in cell C6 in the accompanying Excel spreadsheet to compute ending inventory?  (Click to select)  =C3+C4-C5  =C3-C4+C5  =C3-(C4-C5)  =C5-C4-C3

c) What formula could be entered in cell F20 in the accompanying Excel spreadsheet to compute the Total Cost for all four quarters?

Quarter 1 2 3 4 Unit Production Cost $ 300 $ 300 $ 300 $ 300 Units Demanded 2,000 9,000 12,000 11,000 Maximum Production 8,000 7,000 8,000 9,000

Explanation / Answer

Answer a. =C15*(C3+C6)/2= Unit carrying cost* avg inventory

Answer b. = C3+C4-C5= Start inventory+ produced- Demanded= closing inventory

Answer c. = Formula should be SUM(C17:F18)

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