Question

Flag Bike components manufactures bicycle wheels and had just received their forecasts for the next 6 months. Currently, flag bike employs 15 full time, highly skilled employees, each of whom can produce 100 wheels per month. There are 300 wheels in beginning inventory and at present, flag bikes’s customers will tolerate backorders of up to 200 units per month. The associated costs are $4 per unit for regular time and 7.50 per unit for overtime. Inventory holding costs are $3 per unit per month and backorder cost are $6 per unit per month. Hiring is $300 per employees and firing is $400 per employee.

Calculate the total cost of a pure CHASE PLAN below:

Month	Nov	Dec	Jan	Feb	Mar	Apr
Forecast	1500	1400	900	1800	1500	1100

Answer 1

Assumption - 1: Without considering the cost of beginning inventory of 300 units

Assumption-2: Considering the cost of average inventory of 150 in Nov due to the beginning inventory of 300

$39,150 + $3 x 150 = $39,600