Henderson Furniture sells reproductions of 18th century furniture. For a particu
ID: 401594 • Letter: H
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Henderson Furniture sells reproductions of 18th century furniture. For a particular table, the following information is valid. Month | Demand Jan 81 Feb 89 Mar 100 Apr 130 May 97 Jun 126 Jul 96 Aug 93 Sep 78 Oct 127 Nov 78 Dec 69 Production for last quarter was 70. Holding Cost=$200 per table per year Backorder Cost = $50 per table per year Hiring Cost=$25 per unit Firing Cost=$30 per unit a. Calculate the costs associated with level production and chase production strategies. b. Which strategy do you recommend?Explanation / Answer
Chase production strategy would be recommended as the level production cost will be more beacuse in level production firm will produce the fixed no. of tables daily to meet the demand. that will increase maintainence cost....
Companies that use the chase strategy, or demand matching strategy, produce only enough goods to meet or exactly match the demand for goods. Think of this strategy in terms of a restaurant, which produces meals only when a customer orders, therefore matching the actual production with customer demand. The chase strategy has several advantages—it keeps inventories low, which frees up cash that otherwise can be used to buy raw materials or components, and reduces inventory carrying costs that are associated with holding inventory in stock. Cost of capital, warehousing, depreciation, insurance, taxes, obsolescence and shrinkage are all inventory carrying costs.
In a manufacturing company that uses a level production strategy, the company continuously produces goods equal to the average demand for the goods. Scheduling consistently arranges the same quantity of goods for production based on the total demand for the goods. So, if for three months a company wants to produce 20,000 units of a certain item and there are a total of 56 working days, it can level production to 358 units per day
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