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...

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.