Solution-Should GRF use a third party

Should GRF use a third party

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Reference no: EM133093141

Question - The monthly forecasts for Gravity Room Furniture Ltd. (GRF), a manufacturer of outdoor furniture, is shown in the table below. The factory is open for 6 hrs/day and 25 days/month. To produce one unit, an employee needs 30 hrs of labor, and gets paid $5/hr for regular time and $6/hr for overtime, with a maximum of 20 hrs of overtime per month (per employee). The materials needed to make a unit cost $50. GRF can hire and train a new employee for $500 and lay off one for $400. Inventory costs $3 per unit on hand at the end of each month. At present, 140 employees are on the payroll, anticipated starting inventory is 100 units, and GRF would like to end the year with the same level of inventory.

Month	Demand
Jan	300
Feb	300
Mar	500
Apr	500
May	700
June	900
July	1300
Aug	1600
Sept	900
Oct	500
Nov	300
Dec	300

Required -

A. What is the stock-out cost?

B. What is the subcontractor cost?

C. A third party has offered to produce the furniture as needed at a cost of $230 per unit (this includes material costs). Should GRF use a third party? Explain in detail the reasons behind your decision.

Reference no: EM133093141

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Should GRF use a third party

Reference no: EM133093141

Reference no: EM133093141

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