Answer:
This question is incomplete, here's the complete question:
Southeast Soda Pop, Inc., has a new fruit drink for which it has high hopes. John Mittenthal, the production planner, has assembled the following cost data and demand forecast:
QUARTER FORECAST 1 1,800 2 1,100 3 1,600 4 900 COSTS/OTHER DATA Previous quarter’s output = 1,300 cases Beginning inventory = 0 cases Stock-out cost = $150 per case Inventory holding cost = $40 per case at end of quarter Hiring employees = $40 per case Terminating employees = $80 per case Subcontracting cost = $60 per case Unit cost on regular time = $30 per case Overtime cost = $15 extra per case Capacity on regular time = 1,800 cases per quarter John’s job is to develop an aggregate plan. The three initial options he wants to evaluate are:
Plan A: a strategy that hires and fires personnel as necessary to meet the forecast. Total cost = $
Plan B: a level strategy. Cost = $
Plan C: a level strategy that produces 1,200 cases per quarter and meets the forecast demand with inventory and subcontracting. $
Which strategy is the lowest-cost plan?
Explanation:
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The question is about forecasting the Southeast Soda Pop Inc. fruit drink.
A
The total cost that will be incurred is
Variable Cost = $30 * 5400 = $162,000
Hiring Cost = $40 * 1000 = $40,000
Redundancy Cost = $80 * 1400 = $112,000
Total will be $314,000.
B
The total cost that will be incurred is
Variable Cost = $30 * 5400 = $162,000
Hiring Cost = $40 * 50 = $2,000
Holding Cost = $40 * 700 = $28,000
Stock out Cost = $150 * 450 = $67,500
Total will be $259,500.
C
The total cost that will be incurred is
Variable Cost = $30 * 4800 = $144,000
Holding Cost = $40 * 400 = $16,000
Sub contracting Cost = $60 * 900 = $54,000
Redundancy Cost = $80 * 100 = $8,000
Total will be $222,000.
Lowest total cost is achieved at C therefore Option C should be selected.
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