Question: The lowest cost is obtained by the first plan. Bits and Pieces uses overtime, inventory, and subcontracting to absorb fluctuations in demand. An annual production plan is devised and updated quarterly. Expected demand over the next 4 quarters is 600, 800, 1600, and 1900 units. The capacity for regular production is 1000 units per quarter with an overtime capacity of 100 units a quarter. Subcontracting is limited to 500 units a quarter. Regular production costs $20 per unit, overtime $25 per unit, and subcontracting $30 per unit. Inventory holding costs are assessed at $3 per unit per period. There is no beginning inventory. Design a production plan that will satisfy demand at minimum cost.

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