Question: Problem 13.9

a. Mary who is operations manager at a furniture store has received the following estimates of demand requirements.

i. Assuming stockout costs for lost sales of $100 per unit, inventory carrying costs of $25 per unit per month, and zero beginning and ending inventory, evaluate these two plans on as incremental cost basis.

? Plan A: Produce at a steady rate ( equal to minimum requirements) of 1,000 unites per month and subcontract additional units at $60 per unit premium cost

? Plan B: Vary the workforce, which performs at a current production level of 1,300 units per month. The cost of hiring additional workers is $3,000 per 100 units produced. The cost of layoffs is $6,000 per 100 units cut back.

ii. Which plan is best and why?