A motherboard manufacturer in China has received the following demand estimates for the next 6 months:

MONTH JAN FEB MAR APR MAY JUN Demand 2,000 2,000 5,000 3,000 4,000 2,000

a) The firm has estimated the carrying costs to be 10 Yuan per unit per month, stockout costs to be 40 Yuan per unit, regular production costs to be 100 Yuan, and subcontracting costs to be 120 Yuan per unit. Prepare and evaluate the following two plans:

◆ Plan A – Use a level production, use inventory and backorders to adjust demand.

◆ Plan B – Produce at a steady rate equal to the minimum monthly demand. Use subcontracting to meet remaining demand.

b) Which plan is better? lop52