Question

2. Kosar Manufacturing has collected the following information on one of its major products. Most efficient production rate = (2,000 + X) units per period Production change costs = $20 per unit of change (from (2,000 + X) units/period) Inventory costs = $6 per unit per period (on closing inventory balance) Backorder costs = $12 per unit to carry demand into next period Beginning inventory =“2X” units X=360 Period Demand (units) 1 3,000 + X 2 2,300 1,800 + X 4 2,800 5 2,000 + X 6 2,300 a) Calculate a level production schedule that yields X inventory at the end of period 6. Ending Inventory Regular Production Extra Production Demand Production Quarter 0 2 4 5 | Average b) What is the total cost of this solution? What is the total inventory cost of this solution? (25 points) Extra production Inventory Backorder Costs Total cost

Answer 1

a. Since X=360, efficient production rate = 2360 units and beginning inventory = 720 units.

We shall aim to produce maximum number of units in a given period irrespective of the demand.

Quarter	Demand	Production	Ending inventory	Regular Production	Extra Production
			720
1	3360	2640	0	2360	280
2	2300	2360	60	2360
3	2160	2360	260	2360
4	2800	2540	0	2360	180
5	2360	2360	0	2360
6	2300	2660	360	2360	300
Average	2,546.67	2,486.67	113.33	2,360.00	253.33

b.

						Costs
Quarter	Demand	Production	Ending inventory (A)	Regular Production	Extra Production (B)	Extra Production@20/unit (B * 20)	Inventory @$6/unit (A * 6)	Backorder @12/unit (B*12)
			720				4320
1	3360	2640	0	2360	280	5600	0	3360
2	2300	2360	60	2360			360
3	2160	2360	260	2360			1560
4	2800	2540	0	2360	180	3600	0	2160
5	2360	2360	0	2360			0
6	2300	2660	360	2360	300	6000	2160	3600
Total						15,200.00	8,400.00	9,120.00