Southeast Soda Pop, Inc., has a new fruit drink for which it has high hopes. John Mittenthal, the production planner, has assembled the following cost data and demand forecast:

QUARTER FORECAST 1 1,800 2 1,100 3 1,600 4 900 COSTS/OTHER DATA Previous quarter’s output 5 1,300 cases Beginning inventory 5 0 cases Stockout cost 5 $150 per case Inventory holding cost 5 $40 per case at end of quarter Hiring employees 5 $40 per case Terminating employees 5 $80 per case Subcontracting cost 5 $60 per case Unit cost on regular time 5 $30 per case Overtime cost 5 $15 extra per case Capacity on regular time 5 1,800 cases per quarter John’s job is to develop an aggregate plan. The three initial options he wants to evaluate are:

◆ Plan A: a strategy that hires and fires personnel as necessary to meet the forecast.

◆ Plan B: a level strategy.

◆ Plan C: a level strategy that produces 1,200 cases per quarter and meets the forecast demand with inventory and subcontracting.

a) Which strategy is the lowest-cost plan?

b) If you are John’s boss, the VP for operations, which plan do you implement and why? lop52