Inventory and subcontracting to absorb the fluctuations

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Reference no: EM13970684

ABC Company uses overtime, inventory and subcontracting to absorb the fluctuations in demand for its playgrounds for children. An aggregate production plan is devised annually and updated quarterly. Cost data, expected demand, and available capacities in units for the next four quarters are given here. Demand must be satisfied in the periods it occurs; that is, no backordering is allowed. Design a production plan that will satisfy demand at minimum cost.         

       Expected   Regular   Overtime   Subcontract

Quarter   Demand   Capacity   Capacity   Capacity

   1          650   750   100   500

   2          1250   950   150   500

   3           1350   1050   200   500

   4          2750   1050   200   500

Regular production cost per unit           $200

Overtime production cost per unit           $250

Subcontracting production cost per unit       $300

Inventory holding cost per unit per period      $30

Beginning Inventory                   300 units

Reference no: EM13970684

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