Provide a detailed cost breakdown

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Unit 2 Individual Project  3-4 pages

A company produces to a seasonal demand, with the forecast for the next 12 months as given below.

Month

Demand

January

600

February

700

March

800

April

700

May

600

June

500

July

600

August

700

September

800

October

900

November

700

December

600

The present labor force can produce 500 units per month. Each employee added can produce an additional 20 units per month and is paid $1000 per month. The cost of materials is $30 per unit. Overtime can be used at the usual premium of time and a half for labor up to a maximum of 10 percent per month. Inventory-carrying cost is $50 per unit per year. Changes in production level cost $100 per unit due to hiring, line changeover costs, and so forth. Assume 200 units of initial inventory. Extra capacity may be obtained by subcontracting at an additional cost of $15 per unit over and above the company's producing them itself on regular time.

Provide a detailed cost breakdown for using a level vs. a chase strategy to meet the increased demand.

Which strategy do you recommend?

How much savings would result from the plan you recommend?

Reference no: EM13727319

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