The S&OP team at Kansas Furniture, has received estimates of demand requirements

Question

The S&OP team at Kansas Furniture, has received estimates of demand requirements as shown in the table. Assuming stockout costs for lost sales of $100 per unit, inventory carrying costs of $30 per unit per month, and zero beginning and ending inventory, evaluate the following plan on an incremental cost basis: Plan A: Produce at a steady rate ( equal to minimum requirements) of 1,200 units per month and subcontract additional units at a $70 per unit premium cost. Subcontracting capacity is limited to 500 units per month. ( enter all responses as whole numbers )

      Month    Demand     Production     Ending inventory     Subcontract (Units)

1. July           1200              1,200                 0                                       ?

2. August       1300             1,200                0                                       ?

3. Sept           1200              1,200                0                                       ?

4. Oct            1700               1,200                0                                       ?

5. Nov           1650               1,200                0                                       ?

6. Dec           1400               1,200               0                                       ?

Explanation / Answer

Subcontracting units = Demand - (Production + Ending inventory of previous month ), limited to 500 per month .

Month    Demand Production Ending inventory Subcontract (Units) 0 July          1200 1200 0 0 August       1300 1200 0 100 Sept          1200 1200 0 0 Oct           1700 1200 0 500 Nov           1650 1200 0 450 Dec           1400 1200 0 200

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