Evaluate these two plans on an incremental cost basis

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Reference no: EM131359187

The S&OP team at Kansas Furniture, has received the following estimates of demand requirements:

July	Aug.	Sept.	Oct.	Nov.	Dec.
1,000	1,200	1,400	1,800	1,800	1,800

a) Assuming one-time stock out costs for lost sales of $100 per unit, inventory carrying costs of $25 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 1,000 units per month and subcontract additional units at a $60 per unit premium cost.

Plan B: Vary the workforce, to produce the prior month's demand. The firm produced 1,300 units in June. The cost of hiring additional workers is $3,000 per 100 units produced. The cost of layoff s is $6,000 per 100 units cut back.

b) Which plan is best and why?

Reference no: EM131359187

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