What is the total cost of inventory and production policy

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Reference no: EM132253592

A manufacturer of bath soap,is trying to control its inventory costs. The weekly cost of holding one unit of soap in inventory is $30 (one unit is 1000 cases of soap). The marketing department estimates that weekly demand averages 120 units,with a standard deviation of 15 units,and is reasonably well modeled by a normal distribution.If demand exceeds the amount of soap on hand,those sales are lost—that is,there is no backlogging of demand.The production department can produce at one of three levels:110,120,or 130 units per week.The cost of changing the production level from one week to the next is $3000.

Management would like to evaluate the following production policy.If the current inventory is less than L 30 units,they will produce 130 units in the next week.If the current inventory is greater than U 80 units,they will produce 110 units in the next week.Otherwise,Ebony will continue at the previous week’s production level.

Ebony currently has 60 units of inventory on hand. Last week’s production level was 120.

1. What is the total cost of the inventory and production policy over the 52 weeks?

Reference no: EM132253592

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