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Demand and Production Strategy

Management at Davis Corporation has determined the following demand schedule in units.

Month Demand Month Demand
1 500 7 1,400
2 800 8 1,200
3 1,000 9 1,000
4 1,400 10 2,400
5 2,000 11 3,000
6 1,600 12 1,000

An employee can produce an average of 10 units per month. Each worker on the payroll costs $2,000 in regular time wages per month. Undertime is paid at the same rate as regular time. in accordance with the labor contract in force, Davis Corp. does not work overtime or use subcontracting. Davis can hire and train a new employee for $2,000 and lay off one for $500. Inventory costs $32 per unit on hand at the end of each month. At present, 140 employees are on the payroll and anticipation inventory is zero.

a) Prepare a production plan with the level-inventory strategy that only uses hires and anticipation inventory as possible alternatives, and minimizes the inventory left over at the end of the year. Layoffs, undertime,vacations,subcontracting,backroders and stockouts are not options. The plan may call for a one time adjustment of the workforce before month 1.

b) Prepare a production plan with the chase strategy, relying only on hires and layoffs.

c) Compare and contrast these two plans on the basis of annual costs and other factors that you believe to be important.

d) Propose a mixed-strategy plan that is better than these 2 plans. Explain why you believe that your plan is better.