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

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Essay

Fred's Fabrication has the following aggregate demand requirements and other data for the upcoming four quarters.
 Quarter  Demand  Previous quarter’s output 800 units 1700 Beginning inventory 0 units 2900 Stockout cost $100 per unit 31200 Inventory holding cost $10 per unit at end of quarter 4600 Hiring workers $20 per unit  Laying off workers $40 per unit  Subcontracting cost $200 per unit  Unit cost $100 per unit \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:

Risk Premium

The extra return expected by investors for holding a risky asset compared to a risk-free asset, compensating for the additional risk.

Total Return

The complete return on an investment over a specified period, including both capital gains and income received.

Dividend

A portion of a company's earnings that is paid to shareholders or owners as a distribution of profits.

Capital Gains Rate

The tax rate applied to the profit made from selling an asset at a higher price than its purchase price.

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