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A firm wishes to develop an aggregate plan for the next 3 periods (January, February and March).

Demand is for 1200 units in January, 1400 in February and 1600 in March. The firm has 4 planning strategies at hand – inventories, regular time, overtime and subcontract. They have 50 units of beginning inventory and the capacity to produce 900 units with regular time per month, 300 units with overtime monthly and the ability to subcontract 1000 units monthly. Cost data is as follows:

Regular time cost = $75/unit

Overtime cost = $112.5/unit

Subcontract cost =$120/unit

Inventory Carrying cost = $6 per month/unit

Assuming that back orders are not permitted, set up a production plan that minimizes cost using the transportation method.


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