The production manager at the Boston Paint Company is preparing production and inventory plans for next year. The production manager has received the following quarterly sales forecasts:
3,000 units in Quarter 1;
1,800 in Quarter 2;
2,400 in Quarter 3;
and 3,500 in Quarter 4.
The following should be considered for the production plan:
Current inventory level is 300 units. Current employment level is 600 people. Regular production capacity per employee is 4 units per quarter. Inventory carrying cost is $20 per unit per quarter (based on ending inventory). Hiring and layoff costs are equal at $200 per employee. Regular time production cost per unit is $320. Overtime production cost per unit is $380. Desired closing inventory level is a minimum of 100 units.
Based on the above information, please create an optimal (lower-cost) production plan for the next year. Then decide whether we should use a level production plan or a chase production plan?
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