Create a level plan with a zero ending inventory for the forecast shown in the table. There is no beginning inventory and regular production capacity is 300 units

Overtime costs $15 extra and is limited to 25 units per month and subcontracting is limited to 60 units per month and costs $10 per unit. Back orders cost $50 per unit and there is a cost of $5 per month to hold a unit in inventory. What is the total plan cost?

Month Forecast Regular Overtime Subcontracting Ending Inventory
January 250
February 300
March 400
April 350
What will be an ideal response?

Answer: The total demand forecast for the planning period is 1300 units, so 325 units should be produced every month. This is 25 units over capacity so they should be made as cheaply as possible, in this case subcontracting. Total plan cost for this four month period is 100($10) + 200($5) = $2000.

Month Forecast Regular Overtime Subcontracting Ending Inventory
January 250 300 25 75
February 300 300 25 100
March 400 300 25 25
April 350 300 25 0