Question
Unit:Strategic Use of Resources A company produces to a seasonal demand, with the forecast for the next 12 months as given below. Month Demand January
Unit:Strategic Use of Resources
A company produces to a seasonal demand, with the forecast for the next 12 months as given below.
Month
Demand
January
600
February
700
March
800
April
700
May
600
June
500
July
600
August
700
September
800
October
900
November
700
December
600
The present labor force can produce 500 units per month. Each employee added can produce an additional 20 units per month and is paid $1000 per month. The cost of materials is $30 per unit. Overtime can be used at the usual premium of time and a half for labor up to a maximum of 10 percent per month. Inventory-carrying cost is $50 per unit per year. Changes in production level cost $100 per unit due to hiring, line changeover costs, and so forth. Assume 200 units of initial inventory. Extra capacity may be obtained by subcontracting at an additional cost of $15 per unit over and above the company's producing them itself on regular time.
- Provide a detailed cost breakdown for using a level vs. a chase strategy to meet the increased demand.
- Which strategy do you recommend?
- How much savings would result from the plan you recommend?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Managerial Accounting
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
13th Edition
978-0073379616, 73379611, 978-0697789938
