The president of Hill Enterprises, Terri Hill, projects the firm's aggregate demand requirements over the next 8 months as follows: January 1,400 May 2,200 February 1,500 June 2,200 March April 1,800 1,700 July August 1,700 1,500 Her operations manager is considering a new plan, which begins in January with 200 units on hand and ends with zero inventory. Stockout cost of lost sales is $100 per unit. Inventory holding cost i $25 per unit per month. Ignore any idle-time costs. The plan is called plan B. Plan B: Produce at a constant rate of 1,400 units per month, which will meet minimum demands. Then use subcontracting, with additional units at a premium price of $80 per unit. Subcontracting capacity is limited to 800 units per month. Evaluate this plan by computing the costs for January through August. In order to arrive at the costs, first compute the ending inventory and subcontracting units for each month by filling in the table below (enter your responses as whole numbers). Period Month Demand Production 0 December Ending Inventory 200 Subcontract Units 1 January 1,400 1,400 2 February 1,500 1,400 3 March 1,800 1,400 4 April 1,700 1,400 5 May 2,200 1,400 6 June 2,200 1,400 7 July 1,700 1,400 8 August 1,500 1,400
The president of Hill Enterprises, Terri Hill, projects the firm's aggregate demand requirements over the next 8 months as follows: January 1,400 May 2,200 February 1,500 June 2,200 March April 1,800 1,700 July August 1,700 1,500 Her operations manager is considering a new plan, which begins in January with 200 units on hand and ends with zero inventory. Stockout cost of lost sales is $100 per unit. Inventory holding cost i $25 per unit per month. Ignore any idle-time costs. The plan is called plan B. Plan B: Produce at a constant rate of 1,400 units per month, which will meet minimum demands. Then use subcontracting, with additional units at a premium price of $80 per unit. Subcontracting capacity is limited to 800 units per month. Evaluate this plan by computing the costs for January through August. In order to arrive at the costs, first compute the ending inventory and subcontracting units for each month by filling in the table below (enter your responses as whole numbers). Period Month Demand Production 0 December Ending Inventory 200 Subcontract Units 1 January 1,400 1,400 2 February 1,500 1,400 3 March 1,800 1,400 4 April 1,700 1,400 5 May 2,200 1,400 6 June 2,200 1,400 7 July 1,700 1,400 8 August 1,500 1,400
Chapter19: Pricing Concepts
Section: Chapter Questions
Problem 6DRQ
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Transcribed Image Text:The president of Hill Enterprises, Terri Hill, projects the firm's aggregate demand requirements over the next 8 months as follows:
January
1,400
May
February
1,500
June
2,200
2,200
March
April
1,800
1,700
July
August
1,700
1,500
Her operations manager is considering a new plan, which begins in January with 200 units on hand and ends with zero inventory. Stockout cost of lost sales is $100 per unit. Inventory holding cost is
$25 per unit per month. Ignore any idle-time costs. The plan is called plan B.
Plan B: Produce at a constant rate of 1,400 units per month, which will meet minimum demands. Then use subcontracting, with additional units at a premium price of $80 per unit. Subcontracting
capacity is limited to 800 units per month. Evaluate this plan by computing the costs for January through August.
In order to arrive at the costs, first compute the ending inventory and subcontracting units for each month by filling in the table below (enter your responses as whole numbers).
Period Month
Demand
Production
0
December
Ending
Inventory
200
Subcontract
Units
1
January
1,400
1,400
2
February
1,500
1,400
3
March
1,800
1,400
4
April
1,700
1,400
5
May
2,200
1,400
6
June
2,200
1,400
7
July
1,700
1,400
8
August
1,500
1,400
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