Compute the cost of a chase strategy

Reference no: EM132747575

Question - A manufacturing company has a seasonal demand pattern with the forecast demand for each month next year equal to 1,300, 1,000, 800, 700, 700, 700, 800, 900, 1,000, 1,200, 1,400, and 1,500 units, respectively. The company plans to end the current year with about 800 units in inventory. The company requires a minimum of 500 units in inventory for safety stock and work in process. It costs $1.40 per month to hold a unit in inventory. The company will end the current year with 40 employees, and it costs $300 to hire and $400 to lay off an employee. It takes an employee 5 hours to make a product, and the company operates 160 hours per month.

Required -

a) Compute the cost of a chase strategy, in which the number of employees is changed so the monthly production rate is made equal to the monthly demand rate.

b) Compute the cost of a pure inventory strategy, with the work force and production rate held constant at the average demand rate and the variation in demand rate accounted for by accumulating and depleting inventory.

c) Which strategy is more cost-efficient?

Reference no: EM132747575

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