Washington Laundry Products, Inc Which Is Cheaper: to Produce Level, Incurring Back Orders and (The

Essay

Washington Laundry Products, Inc., makes commercial and industrial laundry machines (the kinds hotels use), and has these aggregate demand requirements for the next six months. The firm has regular capacity for 200 units, and overtime capacity for 40 more. Currently, subcontracting can supply up to 100 units per month, but the subcontracting firm may soon be unavailable. $\begin{array}{|l|l|l|l|l|}\hline \text { Month } & \text { Demand } & & {\text { Costs and other data }} \\\hline 1 & 220 && \text { Previous output level } & 150 \text { units } \\\hline 2 & 160 && \text { Beginning inventory } & 100 \text { units } \\\hline 3 & 200 && \text { Stockout cost } & \$ 250 \text { per unit } \\\hline 4 & 210 && \text { Inventory holding cost } & \begin{array}{l}\$ 100 \text { per unit } \\\text { at end of } \\\text { month }\end{array} \\\hline 5 & 200 && \text { Unit Cost, regular time } & \$ 1,200 \text { per } \\&&&&\text { unit }\\\hline & 190 && \text { Subcontracting } & \$ 2,000 \text { per } \\6 &&&& \text { unit } \\\hline&&&\text { Unit Cost, overtime } & \$ 1,500 \text { per } \\&&&&\text { unit }\\\hline &&&\text { Hiring workers } & \$ 200 \text { per unit } \\\hline &&&\text { Laying off workers } & \$ 500 \text { per unit }\\\hline\end{array}$ Which is cheaper: to produce level, incurring back orders and inventory charges; or to produce a base quantity of 120, using first, overtime, then subcontracting, to meet demand?