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Planning Inventories

Planning Inventories

The national tire company (NTC) manufactures only one type of tire and wants to plan its production and inventory levels for the next five months. Company policy is to schedule all of its overtime production during one month. The following table provides the relevant data for each month, where the inventory-level requirements refer to the level at the end of each month.

Ch 12 Ex 11

Maximum Minimum Maximum Minimum
Unit Production Production Production Inventory Inventory
Month Demand Cost Level Level Level Level
1 12,000 $11.00 18,000 6,000 10,000 2,000
2 18,000 $11.00 18,000 6,000 10,000 2,000
3 24,000 $11.50 30,000 6,000 15,000 2,000
4 20,000 $11.00 18,000 6,000 10,000 2,000
5 22,000 $11.00 18,000 6,000 10,000 2,000

Other relevant information is as follows:
? NTC estimates that it costs $1 to hold one tire in inventory from one month to the next
? NTC currently has an inventory level of 4,000 tires
? NTC wants to meet its demand with no backorders; that is all demand must be met no other than the month in which it occurs.

a. Construct a network diagram to represent the NTC scenario. Using the diagram, build a spreadsheet model for the production and inventory plan.
b. What is the minimum total cost, including production and inventory costs, for the five-month period (ignoring the cost of the initial inventory)? What production levels minimize total cost?

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Solution Summary

Solution contains a network diagram to represent scenario, a spreadsheet model for the production and inventory plan and calculations of the minimum total cost, including production and inventory costs, for the five-month period.

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