Which strategy is the lowest-cost plan

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Reference no: EM131491215

Southeast Soda Pop, Inc., has a new fruit drink for which it has high hopes. John Mittenthal, the production planner, has assembled the following cost data and demand forecast:
quarter       forecast      
1               1,800
2               1,100
3               1,600
4               900

cost/other data:
previous quarter=1,300 cases
beg. inventory=0
stockout cost=$150 per case
inventory holding cost=$40 per case at the end of quarter
hiring employees=$40 per case 
terminating employees=$80 per case
subcontracting cost=$60 per case 
unit cost on regular time=$30 per case
overtime cost=$15 per extra case
capacity on regular time=$1,800 cases per quarter

John's job is to develop an aggregate plan. The three initial options he wants to evaluate are:

¨    Plan A: a strategy that hires and fires personnel as necessary to meet the forecast.

¨    Plan B: a level strategy.

¨    Plan C: a level strategy that produces 1,200 cases per quarter and meets the forecast demand with inventory and subcontracting.

a) Which strategy is the lowest-cost plan?

b) If you are John's boss, the VP for operations, which plan do you implement and why?

Reference no: EM131491215

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