Question
Demand over the next four months are 450, 500, 350, and 400 respectively. Regular time production costs $10 per item, and we can make a
Demand over the next four months are 450, 500, 350, and 400 respectively. Regular time production costs $10 per item, and we can make a maximum of 400 items in a given month in regular time. Overtime production costs $16 per item, and as many as 200 items may be produced in overtime each month (in addition to the regular time production). Keeping an item in inventory incurs a cost of $1 per period; backorders cost $3 per period per item. If we follow a level strategy of production, what would be the cost of production? (= cost of regular time production + cost of overtime production + inventory cost + backorder cost)
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