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Which strategy is the lowest-cost plan

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Reference no: EM131359218

Problem -

Southeast Soda Pop, Inc., has a new fruit drink for which it has high hopes. John Mittenthal, the production planner, has assembled the following cost data and demand forecast:

QUARTER

FORECAST

1

1,800

2

1,100

3

1,600

4

900

 

Costs/Other Data

Previous quarter's output = 1,300 cases

Beginning inventory = 0 cases

Stockout cost = $150 per case

Inventory holding cost = $40 per case at end of quarter

Hiring employees = $40 per case

Terminating employees = $80 per case

Subcontracting cost = $60 per case

Unit cost on regular time = $30 per case

Overtime cost = $15 extra per case

Capacity on regular time = 1,800 cases per quarter

 John's job is to develop an aggregate plan. The three initial options he wants to evaluate are:

Plan A: a strategy that hires and fi res personnel as necessary to meet the forecast.

Plan B: a level strategy.

Plan C: a level strategy that produces 1,200 cases per quarter and meets the forecast demand with inventory and subcontracting.

a) Which strategy is the lowest-cost plan?

b) If you are John's boss, the VP for operations, which plan do you implement and why?

Reference no: EM131359218

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