Question

Kosar Manufacturing has collected the following information on one of its major products.

Most efficient production rate = 2,200 + X units per period

Production change costs = $30 per unit of change (from the most efficient production rate = 2,100 + X units/period)

Inventory costs = $7 per unit per period (on closing inventory balance)

Backorder costs = $15 per unit to carry demand into next period

X= 32

Period	Demand (units)
1	3,000 + X
2	2,300
3	1,800 + X
4	2,800
5	2,000 + X
6	2,300

Beginning inventory = “X*20” units

Calculate a level production schedule that yields X inventory at the end of period 6.

		Total	Ending	Regular	Extra
Quarter	Demand	Production	Inventory	Production	Production
0
1
2
3
4
5
6

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 = 32, efficient production rate = 2,200 + 32 = 2,232 units and beginning inventory = 32 * 20 = 640 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
640
1	3032	2392	0	2232	160
2	2300	2232	68	2232
3	1832	2232	400	2232
4	2800	2400	0	2232	168
5	2032	2232	0	2232
6	2300	2332	32	2232	100
Average	2382.67	2303.33	83.33	2232	142.67

b.

Quarter	Demand	Production	Ending inventory (A)	Regular Production	Extra Production (B)	Extra Production@30/unit (B * 30)	Inventory @$7/unit (A * 7)	Backorder @15/unit (B*15)
640							4480
1	3032	2392	0	2232	160	4800	0	2400
2	2300	2232	68	2232			476
3	1832	2232	400	2232			2800
4	2800	2400	0	2232	168	5040		2520
5	2032	2232	0	2232
6	2300	2332	32	2232	100	3000	224	1500
Average	2382.67	2303.33	83.33	2232	142.67	12840	7980	6420