The president of Hill Enterprises, Terri Hill, projects the firm\'s aggregate de
ID: 358494 • Letter: T
Question
The president of Hill Enterprises, Terri Hill, projects the firm's aggregate demand requirements over the next 8 months as follows: January 1,200 May 2,100 February 1,500 June 2,300 March 1,600 July 1,700 April 1,900 August 1,300 Her operations manager is considering a new plan, which begins in January with 200 units of inventory on hand. Stockout cost of lost sales is $125 per unit. Inventory holding cost is $25 per unit per month. Ignore any idle-time costs. The plan is called plan C.
Plan C: Keep a stable workforce by maintaining a constant production rate equal to the average gross requirements excluding initial inventory and allow varying inventory levels. Conduct your analysis for January through August.
The average monthly demand requirement = ____ units
Fill in the table below. (ending inventory & stockout units)
The total stockout cost = ____
The total inventory carrying cost = ____
Explanation / Answer
Following points may be noted :
Beginning inventory
Ending Inventory
Stockout cost ( $125 / unit )
Inventory carrying cost ( $25/ unit)
Accordingly :
Total stockout cost = $ 25000
Total inventory carrying cost ( $)
= 17500 + 22500 + 25000 + 20000 + 10000 + 0 + 0 + 10000
= $105,000
Beginning inventory
Ending Inventory
Stockout cost ( $125 / unit )
Inventory carrying cost ( $25/ unit)
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