Washington Laundry Products, Inc., makes commercial and industrial laundry machines (the kinds hotels use), and has these aggregate demand requirements for the next six months. The firm has regular capacity for 200 units, and overtime capacity for 40 more. Currently, subcontracting can supply up to 100 units per month, but the subcontracting firm may soon be unavailable.
Which is cheaper: to produce level, incurring back orders and inventory charges; or to produce a base quantity of 120, using first, overtime, then subcontracting, to meet demand?

Question

Washington Laundry Products, Inc., makes commercial and industrial laundry machines (the kinds hotels use), and has these aggregate demand requirements for the next six months. The firm has regular capacity for 200 units, and overtime capacity for 40 more. Currently, subcontracting can supply up to 100 units per month, but the subcontracting firm may soon be unavailable.
  Which is cheaper: to produce level, incurring back orders and inventory charges; or to produce a base quantity of 120, using first, overtime, then subcontracting, to meet demand?

Quizplus · Accepted Answer

The Answer of Washington Laundry Products, Inc., makes commercial and industrial laundry machines (the kinds hotels use), and has these aggregate demand requirements for the next six months. The firm has regular capacity for 200 units, and overtime capacity for 40 more. Currently, subcontracting can supply up to 100 units per month, but the subcontracting firm may soon be unavailable.
  Which is cheaper: to produce level, incurring back orders and inventory charges; or to produce a base quantity of 120, using first, overtime, then subcontracting, to meet demand?