A major flood has caused extensive damage to one of your production plants at the end of the 4th quarter last year. There were no fatalities, but the destruction of the plant has decreased production capacity for Detonka by 25%.

The total cost of repairs to the facility and machinery is expected to be $100 million, which will be covered by existing insurance. However, it is expected that it will take an additional three months before production is back on line. While some customers will be willing to wait to purchase the vehicle, others may switch to a competitor's vehicle if there is insufficient inventory to meet demand.

After assessing the situation in depth, the plant manager has provided the following options to your management team.

Choose one of them to address the problem.

1. Complete the repairs as planned and use any existing inventory in the pipeline to handle demand.

2. Give consumers who order the vehicle before inventory is available a special discount of $500 per vehicle to wait for delivery in the 2nd half of the year. This cost will show up as a one-time exceptional cost.

3. Temporarily shift 1st quarter production to other plants at a one-time exceptional cost of $50 million. This will allow you to achieve whatever production targets are input for the upcoming period, though any over-capacity charges will still apply.