A Company Has the Cost Structure Shown in the Table

question 13

Multiple Choice

A company has the cost structure shown in the table and faces a demand in July that exceeds capacity by 200 units. They enter June with an inventory of zero and a demand equal to capacity. Their best course of action in order to completely fill all of the orders for both June and July by the end of July is to: $$\begin{array} { | l | c | } \hline { \text { Managerial Lever } } & \text { Cost } \\\hline \text { Regular production } & \$ 1,000 / \text { unit } \\\hline \text { Overtime production } & \$ 1,300 / \text { unit } \\\hline \text { Subcontracting } & \$ 1,200 / \text { unit } \\\hline \text { Inventory holding } & \$ 100 / \text { unit/month } \\\hline \text { Backlog cost } & \$ 400 / \text { unit/month } \\\hline\end{array}$$

• A)subcontract 200 units in June and use 100% of their regular capacity in both June and July.
• B)subcontract 100 units in both June and July and use 100% of their regular capacity in both June and July.
• C)produce 200 units using overtime in July and use 100% of their regular capacity in both June and July.
• D)subcontract 200 units in July and use 100% of their regular capacity in both June and July.

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Definitions:

Outsourcing Alliance

A partnership where a company contracts out certain services or processes to another company, aiming to leverage specialized skills or cost advantages.

Preferred Supplier

A business that has been given a status that prioritizes its goods or services over others due to its quality, reliability, or cost-effectiveness.

Strategic Alliance

An alliance between two or more firms aiming to achieve common goals, with each maintaining their separate entity status.

Globalization Strategy

A strategy that adopts standardized products and advertising for use worldwide.