Forecast is reliable-the stock out cost is negligible

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Josh, Inc. is faced with the choice of either producing a newly designed product, XX-30, to stock in anticipation of demand or to customer order. The demand for the product is expected to be 5,000 units per week. Josh decided to produce XX-30 in lots of 500 units. The cost of holding the average unit in inventory per year is $50 times the average inventory level. If Josh, Inc. produces to order, it must discount its unit price on all sales $5 for each week that the first customer to order has to wait before the product is delivered. Should Josh, Inc. produce to stock or to order? [assume that the forecast is reliable, the stock out cost is negligible, the make to order policy does not incur inventory holding costs and 52 weeks per year.

Reference no: EM132228307

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