Question

Determine the total cost for this plan given the following forecast:

Month 1 2 3 4 5 6
Forecast 380 400 420 440 460 480
Use steady regular output of 400 unites per month, use overtime as needed for up to 40 unites per month, and use subcontracting to make up any needed output to match the forecast. Unit costs are:

Regular output = $25

Overtime = $40

Subcontract = $60

Average balance inventory = $15

Answer 1

Answer:

                                                 Month

                                              1            2           3              4         5          6

Units      

Forecasted Demand         380       400     420    440 460       480

Regular Production         400       400        400      400     400        400

Overtime                          0          0          0       40    40         40

Subcontracting                  0          0          0        0   20         40

Inventory at end of month 20         20          0        0   0         0

Cost      

Regular Production  $10,000  $10,000  $10,000  $10,000 $10,000 $10,000

Overtime production cost $0        0   $0   $1,600 $1,600 $1,600

Subcontract cost                $0        0   $0     $0 $1,200 $2,400

Inventory holding cost      $300     $300   $0     $0 $0           $0

Total Cost                                                    $69,000

Explanation: