Kings Appliance Manufacturers makes toasters and wants to evaluate a level strategy against a chase strategy. The quarterly demand forecasts are: Q1 – 12,000, Q2 – 15,000, Q3 – 18,000, and Q4 – 33,000. The beginning finished goods inventory level is 3,000 units. No backorders are allowed. Average cost per unit is $200, inventory-carrying cost is $2/unit/month, lost sales cost per unit is $300, and rate change costs are $6 per unit. Assume quarterly demand is evenly distributed over each quarter’s three months. Use the Agg Plan – Level and Agg Plan – Chase Excel templates as appropriate to answer the following questions.

a. If a level production strategy is followed, what monthly production rate is required to meet demand and yield zero finished goods inventory at the end of December? 

b. If a chase production strategy is followed, how much should be produced each month to meet demand and yield zero finished goods inventory at the end of December?

c. What production strategy has a lower total cost?