The president of Hill Enterprises, Terri Hill, projects the firm\'s aggregate de
ID: 383804 • Letter: T
Question
The president of Hill Enterprises, Terri Hill, projects the firm's aggregate demand requirements over the next 8 months as follows 1,500 1,700 1,700 1,900 2,100 2,300 1,800 1,300 May June January February March April August Her operations manager is considering a new plan, which begins in January with 200 units on hand and ends with zero inventory. Stockout cost of lost sales is $125 per unit. Inventory holding cost is $20 per unit per month. Ignore any idle-time costs. The plan is called plan B Plan B: Produce at a constant rate of 1,300 units per month, which will meet minimum demands. Then use subcontracting, with additional units at a premium price of $80 per unit. Subcontracting capacity is limited to 1,000 units per month. Evaluate this plan by computing the costs for January through August. In order to arrive at the costs, first compute the ending inventory and subcontracting units for each month by filling in the table below (enter your responses as whole numbers)Explanation / Answer
Table 1:
Period
Month
Demand
Production
Ending Inventory
Subcontract Units
0
December
200
1
January
1,500
1,300
0
0
2
February
1,700
1,300
0
400
3
March
1,700
1,300
0
400
4
April
1,900
1,300
0
600
5
May
2,100
1,300
0
800
6
June
2,300
1,300
0
1,000
7
July
1,800
1,300
0
500
8
August
1,300
1,300
0
0
Table 2 (shows various types of costs excluding normal time labor costs):
Period
Month
Demand
Production
Ending Inventory
Subcontract Units
Lost Sales (in units)
Inventory Carrying Cost (in $) (@ $ 20 per unit per month)
Subcontracting Cost (in $) (@ $ 80 per unit)
Stockout Cost of Lost Sales (in $) (@ $ 125 per unit)
Total Cost (in $)
0
December
200
1
January
1,500
1,300
0
0
0
0
0
0
0
2
February
1,700
1,300
0
400
0
0
32,000
0
32,000
3
March
1,700
1,300
0
400
0
0
32,000
0
32,000
4
April
1,900
1,300
0
600
0
0
48,000
0
48,000
5
May
2,100
1,300
0
800
0
0
64,000
0
64,000
6
June
2,300
1,300
0
1,000
0
0
80,000
0
80,000
7
July
1,800
1,300
0
500
0
0
40,000
0
40,000
8
August
1,300
1,300
0
0
0
0
0
0
0
Total
0
296,000
0
296,000
The total subcontracting cost = $ 296,000.
The total inventory carrying cost = $ 0.
The total cost, excluding normal time labor costs = $ 296,000.
.
Period
Month
Demand
Production
Ending Inventory
Subcontract Units
0
December
200
1
January
1,500
1,300
0
0
2
February
1,700
1,300
0
400
3
March
1,700
1,300
0
400
4
April
1,900
1,300
0
600
5
May
2,100
1,300
0
800
6
June
2,300
1,300
0
1,000
7
July
1,800
1,300
0
500
8
August
1,300
1,300
0
0
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