Determine The Cost Of Each Strategy. Which Strategy Would You Recommend?

Rowley Apparel, manufacturer of the famous “Race-A-Rama” swimwear line, needs help planning production for next year. Demand for swimwear follows a seasonal pattern, as shown here. Given the following costs and demand forecasts, test these four strategies for meeting demand: (a) level production with overtime and subcontracting, as needed, (b) level production with backorders as needed, (c) chase demand, and (d) 3000 units regular production from April through September and as much regular, overtime, and subcontracting production in the other months as needed to meet annual demand. Determine the cost of each strategy. Which strategy would you recommend?

Month

Demand Forecast

January

1000

February

500

March

500

April

2000

May

3000

June

4000

July

5000

August

3000

September

1000

October

500

November

500

December

3000

Beginning workforce

8 workers

Subcontracting capacity

unlimited

Overtime capacity

2000 units/month

Production rate per worker

250 units/month

Regular wage rate

$15 per unit

Overtime wage rate

$25 per unit

Subcontracting cost

$30 per unit

Hiring cost

$100 per worker

Firing cost

$200 per worker

Holding cost

$0.50 per unit/month

Backordering cost

$10 per unit/month

 

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