Fred's Fabrication Has the Following Aggregate Demand Requirements and Other

question 121

Essay

Fred's Fabrication has the following aggregate demand requirements and other data for the upcoming four quarters.
$$\begin{array} { | l | l | l | l | } \hline \text { Quarter } & \text { Demand } & \text { Previous quarter's output } & 800 \text { units } \\\hline 1 & 700 & \text { Beginning inventory } & 0 \text { units } \\\hline 2 & 900 & \text { Stockout cost } & \$ 100 \text { per unit } \\\hline 3 & 1200 & \text { Inventory holding cost } & \$ 10 \text { per unit at end of quarter } \\\hline 4 & 600 & \text { Hiring workers } & \$ 20 \text { per unit } \\\hline & & \text { Laying off workers } & \$ 40 \text { per unit } \\\hline & & \text { Subcontracting cost } & \$ 200 \text { per unit } \\\hline & & \text { Unit cost } & \$ 100 \text { per unit } \\\hline\end{array}$$ Which of the following production plans is better: Plan A-chase demand by hiring and layoffs; Plan B-pure level strategy, or Plan C-700 level with the remainder by subcontracting?

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Definitions:

Continuity Assumption

A fundamental accounting principle assuming that a business will continue to operate indefinitely, maintaining its financial and operational policies without the intention or necessity of liquidation.

Foreseeable Future

A term used in planning and forecasting to describe the time period over which future events can be reliably predicted.

Financial Reporting

The process of producing statements that disclose an organization's financial status to management, investors, and regulators.

Transactions

The act of conducting business such as buying, selling, or exchanging goods, services, or financial instruments, recorded in the financial records of an entity.