Mary Rhodes, operations manager at Kansas Furniture, has received the following estimates of demand requirements:

Assuming stock out 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 requirement) of 1,000 units per month and subcontract additional units at a $60 per unit 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 layoffs is $6,000 per 100 units cutback.

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July 1,000 Aug Oct Nov Dec 1,200 Sep 1,800 1.400 1,800 1,600