A Manager Has Prepared a Forecast of Expected Aggregate Demand $$\begin{array} { l l } \text { Month } & \text { Forecast } \\\hline 1 & 80 \\2 & 100 \\3 & 120 \\4 & 110 \\5 & 100 \\6 & 90\end{array}$$

question 51

Essay

A manager has prepared a forecast of expected aggregate demand for the next six months. Develop an aggregate plan to meet this demand given this additional information: A level production rate of 100 units per month will be used. Back orders are allowed, and they are charged at the rate of $8 per unit per month. Inventory holding costs are $1 per unit per month in ending inventory. Determine the cost of this plan if regular time cost is $20 per unit and beginning inventory is zero. $$\begin{array} { l l } \text { Month } & \text { Forecast } \\\hline 1 & 80 \\2 & 100 \\3 & 120 \\4 & 110 \\5 & 100 \\6 & 90\end{array}$$

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Definitions:

Pre-Tax Cost

The expense or cost associated with an activity or asset before taxes are deducted.

Debt-Equity Ratio

A measure used to evaluate a company's financial leverage, calculated by dividing its total liabilities by stockholders' equity.

M&M II

The second proposition by Modigliani and Miller which states that in the absence of taxes, bankruptcy costs, and asymmetric information, and in an efficient market, the value of a levered firm is equal to the value of an unlevered firm plus the present value of the tax shields due to debt.

Pre-Tax Cost

Pre-Tax Cost refers to the expense or cost a company incurs before any taxes are deducted.