Question

The​ S&OP team at Kansas​ Furniture, has received estimates of demand requirements as shown in the table. Assuming​ one-time stockout costs for lost sales of

​$100100

per​ unit, inventory carrying costs of

​$2525

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 comma 1001,100

units per month and subcontract additional units at a

​$7070

per unit premium cost. Subcontracting capacity is limited to

800800

units per month.

​(Enter

all responses as whole

numbers​).

                                                                                                               

	Month	Demand	Production	Ending Inventory	Subcontract ​(Units)
1	July	13001300	1 comma 1001,100	00	200200
2	August	11501150	1 comma 1001,100	00	5050
3	September	11001100	1 comma 1001,100	00	00
4	October	16001600	1 comma 1001,100	00	500500
5	November	19001900	1 comma 1001,100	00	800800
6	December	19001900	1 comma 1001,100	00	800800

The total​ cost, excluding normal time labor​ costs, for Plan A​ =

​$164,500164,500.

​(Enter your response as a whole​ number.)Plan​ B: Vary the workforce to produce the prior​ month's demand. The firm produced

1 comma 3001,300

units in June. The cost of hiring additional workers is

​$3535

per unit produced. The cost of layoffs is

​$6060

per unit cut back.

​(Enter

all responses as whole​ numbers.)​Note: Both hiring and layoff costs are incurred in the month of the change​ (i.e., going from production of

1 comma 3001,300

in July to

13001300

in August requires a layoff​ (and related​ costs) of

00

units in​ August).

	Month	Demand	Production	Hire ​(Units)	Layoff ​(Units)	Ending Inventory	Stockouts ​(Units)
1	July	13001300	nothing	nothing	nothing	nothing	nothing
2	August	11501150	nothing	nothing	nothing	nothing	nothing
3	September	11001100	nothing	nothing	nothing	nothing	nothing
4	October	16001600	nothing	nothing	nothing	nothing	nothing
5	November	19001900	nothing	nothing	nothing	nothing	nothing
6	December	19001900	nothing	nothing	nothing	nothing	nothing

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Answer 1

Subcontracting units of July=Demand of July-(ending inventory of June+Production of July) and so on.

=1300-0-1100=200

Total cost of this plan=Total subcontract cost=SUM(F3:F8)*70=$ 164500

Plan B:

Stockout occurs when Demand >Ending inventory of previous period.

Total cost of hiring=SUM(E3:E8)*35=28000

Total cost of layoff=SUM(F3:F8)*60=12000

Total inventory cost=SUM(G3:G8)*25=8750

Total cost of stockout=SUM(H3:H8)*100=60000

Total cost of this plan=SUM(E9:H9)=$ 108750