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    Level vs. chase strategy to increase demand

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    A company produces to a seasonal demand, with the forecast for the next 12 months as given below.

    Month Demand
    January 600
    February 700
    March 800
    April 700
    May 600
    June 500
    July 600
    August 700
    September 800
    October 900
    November 700
    December 600

    The present labor force can produce 500 units per month. Each employee added can produce an additional 20 units per month and is paid $1000 per month. The cost of materials is $30 per unit. Overtime can be used at the usual premium of time and a half for labor up to a maximum of 10 percent per month. Inventory-carrying cost is $50 per unit per year. Changes in production level cost $100 per unit due to hiring, line changeover costs, and so forth. Assume 200 units of initial inventory. Extra capacity may be obtained by subcontracting at an additional cost of $15 per unit over and above the company's producing them itself on regular time.

    Provide a detailed cost breakdown for using a level vs. a chase strategy to meet the increased demand. Which strategy do you recommend? How much savings would result from the plan you recommend?

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    Solution Preview

    Chase=Hiring and Firing workers as necessary to cobtrol outpur
    Level=Constant rate of production

    The most expensive element of chase s the fact that ...

    Solution Summary

    This posting will look at differences between chase and level strategies. It will be broken down step-by-step in an excel spread sheet.