Nowjuice, Inc., produces Shakewell fruit juice. A planner has developed an aggregate forecast for demand (in...

Nowjuice, Inc., produces Shakewell fruit juice. A planner has developed an aggregate forecast for demand (in cases) for the next eight months.

month	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov
forecast	4500	4400	6200	6400	5800	6600	7200	6900

Use the following information to develop aggregate plans.

Regular production cost: $10.00 per case

Regular production capacity: 5,000 cases

Overtime production cost: $16 per case

Subcontracting cost: $20 per case

Holding cost: $1 per case per month

Beginning inventory: 0

Develop an aggregate plan using each of the following guidelines and compute the total cost for each plan. Which plan has the lowest total cost?

(a) Use level production of 5,000 case per month. Supplement using overtime as needed. (Ans. Total cost = $529,600)

(b) Use a combination of overtime (500 cases per month for the first five months), inventory, and subcontracting (500 cases per month from September due to the staff shortage) to handle variations in demand. Note that a proper amount of overtime for the last three months should be found to determine the total cost. (Ans. Total cost = $539,200)

Solutions

Expert Solution

Please refer below images for Part a and b

C -> Scenario 1 is better as it has a lower cost to manage forecasted demand. Also, there is no subcontracting involves which means Nowjuice Inc would have more control over production and quality.

Note - Holding cost = (Ending inventory + Beginning inventory)* Holding cost/ 2

Scenario 1 Solved and Formulas

Scenario 2 solved and formulas

keosha answered 11 months ago

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