A Company Has the Cost Structure Shown in the Table

A company has the cost structure shown in the table and faces a demand in July that exceeds capacity by 200 units. They enter June with an inventory of zero and a demand equal to capacity. Their best course of action in order to completely fill all of the orders for both June and July by the end of July is to subcontract the extra 200 units in June and hold the inventory one period for July's demand.
$$\begin{array} { | l | c | } \hline { \text { Managerial Lever } } & \text { Cost } \\\hline \text { Regular production } & \$ 1,000 / \text { unit } \\\hline \text { Overtime production } & \$ 1300 / \text { unit } \\\hline \text { Subcontracting } & \$ 1200 / \text { unit } \\\hline \text { Inventory holding } & \$ 100 / \text { unit/month } \\\hline \text { Backlog cost } & \$ 400 / \text { unit/month } \\\hline\end{array}$$

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free