The Icanride Bicycle Company has the following projected sales demand for the next 6 months (assume each month has the same number of production days):

Inventory costs them $10 per month per bike based on average monthly inventory (beginning plus ending inventory divided by 2), and any shortage costs them $15 in lost profit. They currently have 30 workers, each capable of producing 100 bikes per month. The workers can produce 20 extra bikes per month on overtime, but it costs an additional $14 in overtime cost per bike produced in overtime.

a. Compute the cost of using overtime and inventory production without shortages.
Can they accomplish that goal under current circumstances?

b. Compute the cost of producing only using overtime and shortages (if necessary).

c. Which alternative is better? Discuss.

Transcribed Image Text:

123456 Month Demand 2,500 3,600 3 2,900 3,300 5 4,000 3,500