A company currently has 100 items in inventory. The demand for the next four months is 500, 800, 900, and 300 units. Determine the monthly production rate if a level strategy is selected with the goal of ending the fourth month with 400 units in inventory.
A) 500 units/month
B) 700 units/month
C) 900 units/month
D) 1100 units/month

Question

Quizplus · Accepted Answer

We need to use the level production strategy where the production rate is constant for all months in order to end the fourth month with 400 units in inventory.

Total demand for four months = 500 + 800 + 900 + 300 = 2500 units
Target ending inventory for the fourth month = 400 units
Starting inventory = 100 units

So, the total production for four months will be:
Production = Total demand + Ending inventory - Starting inventory
Production = 2500 + 400 - 100
Production = 2800 units

Monthly production = Total production / Number of months
Monthly production = 2800 / 4
Monthly production = 700 units/month

Therefore, the best choice is B) 700 units/month.

A Company Currently Has 100 Items in Inventory