Answered: The S&OP team at Kansas Furniture, has…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 2CE: Sterling Corporation has an EOQ of 5,000 units. The company uses an average of 500 units per day. An...

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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 Stephanie Klein-Davis/The Roanoke Times/ AP Images
a) Assuming one-time stockout 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 require-
ments) 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 fi rm 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.

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