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

July - 1000

August - 1200

September - 1400

October - 1800

November - 1800

December - 1600

Assuming stockout 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 requirements) 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 cut back. PX

Which plan is best and why?