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Mary Rhodes, operations Manager at Kansas Furniture, has received the following estimates of demand requirements:
Mary Rhodes, operations Manager at Kansas Furniture, has received the following estimates of demand requirements:July 1,000 August 1,200 Sept 1,400 October 1,800 November 1,800 December 1,600. Assuming stock cost for lost sales of $100 per unit, inventory carrying costs of $25 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 requirements) of $1,000 units per month andsubcontract additional units at $60 per units premium cost.Plan B – Vary the workforce, which performs at a current production level of 1,300 units per month. The cost of hiring additional workers is $3,000 per 100 units produced. The cost of layoff is $6,000 per 100 unit cut back.. Which plan is better why?
