Question: The president of Dosem & Moore Pharmaceuticals, Inc. projects her firm's aggregate demand requirements over the next 8 months to be as follows, where each quantity is measured in cartons:

Two different production plans are being considered. Plan A is to employ a chase strategy by producing the quantity demanded in the prior month. Plan B is to employ a level strategy by producing at a constant rate of 1,400 cartons per month to meet minimum demands, combined with subcontracting for additional cartons. Both plans would begin in January with 200 cartons on hand and end with zero inventory.

The December demand and rate of production are both 1,600 cartons per month. The cost of hiring additional workers is $5,000 per 100 cartons. The cost of laying off workers is $7,500 per 100 cartons. The stockout cost of lost sales is $100 per carton. Inventory holding cost is $20 per carton per month. Subcontracting costs $75 per carton.

1. What is the total cost of Plan A?
2. What is the total cost of Plan B?

Hints: In (a), treat the initial 200 cartons as a reduction in demand. In (b), treat the initial 200 cartons as inventory.

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