Month Mar Apr May Jun Jul Aug Sep Total
Forecast 50 44 55 60 50 40 51 350
Use the following information to develop aggregate plans.
Regular production cost $80 per unit Back-order cost $20 per unit
Overtime production cost $120 per unit Beginning inventory 0 units
Regular capacity 40 units per month
Overtime capacity 8 units per month
Subcontracting cost $140 per unit
Subcontracting capacity 12 units per month
Holding cost $10 per unit per month
Develop an aggregate plan using each of the following guidelines and compute the total cost for each plan. Which plan has the lowest total cost?
a. Use regular production. Supplement using inventory, overtime, and subcontracting as needed. No backlogs allowed.
b. Use a level strategy. Use a combination of backlogs, subcontracting, and inventory to handle variations in demand.
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