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An inventory manager for a furniture manufacturing company has collected the necessary information to determine the optimal production policy for a Louis V bed model. The marketing department has ensured him/her that the demand for this model over the next year will be constant at a rate of 20 units per month. The production manager is maintaining a constant production rate of 45 units per month. He/She has also estimated a setup cost of $1000 per production run and a unit manufacturing cost of $300. The finance department advised the inventory manager to use a monthly interest rate of 10%.
1- Find the optimal production policy.
2- The inventory manager decided to allow shortages at a monthly cost of $1/3 per unit. What is the new production lot size, maximum shortages level, and monthly total system cost?
An aggregate plan is given in the accompanying table. What is the total cost of the plan? (Hint: Don't forget to calculate the Inventory section of the plan.
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