Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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The S&OP team at Ka nsas Furniture has received the fo llowing estimates of demand requirements: a) Assuming one-time stockout costs for lost sales of $ 100 per unit, inventory carrying costs of $25 per unit per month, and zero beginning and ending inventory, evaluate these two plans on an incremental cost basis: • Plan A: Produce at a steady rate (equal to minimum requirements) of I ,000 units per month and subcontract additional units at a $60 per unit premium cost. • Plan B: Vary the workforce, to produce the prior month's demand. The fi rm produced I ,300 units in June. The cost of hiring additional workers is $3,000 per 100 units produced. The cost of layoffs is $6,000 per l 00 units cut back. Nore: Both hiring and layoff costs are incurred in the month of the change, (i.e., going from production of I ,300 in July to 1,000 in August requires a layofT [and related costs] of 300 units in August, j ust as going from production of I ,000 in A ugust to 1,200 in September requires hiring [and rela ted costs] of200 units in September). b) Which plan is best and why? |
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