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

a) Assuming one-time stock out 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 1,000 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 1,300 units in June. The cost of hiring additional workers is $3,000 per 100 units produced. The cost of layoff s is $6,000 per 100 units cut back.

b) Which plan is best and why?

 

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Status NEW Posted 27 May 2017 01:05 PM My Price 8.00

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