The president of Hill Enterprises, Terri Hill, projects the firm\'s aggregate de

Question

The president of Hill Enterprises, Terri Hill, projects the firm's aggregate demand requirements over the next 8 months as follows January February March April 1,450 1,600 1,800 1,900 May June July August 2,100 2,300 1,800 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 $65 per unit. Inventory holding cost is $20 per unit per month. Ignore any idle-time costs. Evaluate the following plans D and E. Plan D: Keep the current workforce stable at producing 1,600 units per month. In addition to the regular production, another 20% of the normal production units can be produced in overtime at an additional cost of $55 per unit. A warehouse now constrains the maximum allowable inventory on hand to 600 units or less Note: Do not produce in overtime if production or inventory are adequate to cover demand

Explanation / Answer

Total stockout cost= 180+380=560*$65=$36,400

Total cost excluding normal time labor cost= $54,450+$23,000+$36,400= $113,850

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