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Order Paper NowAssuming production costs are $70 per unit, one-time stockout costs for lost sales are $50 per unit, holding costs are $5 per month, with total beginning and ending inventory = 0.
a. Determine the total cost of each of the following plans:
1) Plan A: Produce at a constant rate (which will meet minimum demand) of 1,250 units per month, with an additional subcontract cost of $30 per unit.
2) Plan B: Varied the number of workers to meet the previous month’s demand. The company produced 1,400 units in December. The cost of adding labor is $750 per 50 units produced. The cost of reducing labor is $1,500 per 50 units.
b. What is the best plan and explain why?
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