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A firm must plan production for the next six months. Each unit costs $250 to produce and it has an inventory holding cost of $10 per unit per month based on ending inventory levels. The cost to hire a worker is $100, and the cost to fire a worker is $200 per worker. Each worker produces 10 units per month. There are 20 persons on the payroll at the beginning of the first month. The company currently has 100 units of inventory in stock, and it wants to hold these as safety stock.
Month
1
2
3
4
5
6
Demand
300
400
500
- From the information given above, what level production rate will meet demand for the next six months?
- At that production rate, what is the maximum end-of-period inventory experienced at some time during the six months? What would be the cost of a level production plan?
- From the information given above, what is the total cost of a chase (hire and fire only) production plan?
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