Lavare,local in the Chicago suburbs, is a major manufacturer of stainless steel sinks. Lavare is in the middle of the demand and supply planning exercise for the coming year. Anticipated monthly demand from distributors over the 12 months is shown in Table 9-4. Capacity at Lavare is governed by number of machine operators it hires. The firm works 20 days a month, with a regular operating shift of eight hours per day. Any time beyond that is considered overtime. Regular-time pay is $15 per hour and overtime is $22 per hour. Overtime is limited to 20 hours per month per employee. The plant currently has 250 employees. Each sink requires two hours of labor input. It costs $3 to carry a sink in inventory for a month. Materials cost per sink is $40. Sinks are sold to distributors at a price of $125 each. We assume that no stockouts are allowed and the starting inventory entering January is 5,000 units and the desires ending inventory in December is also 5,000 units. Market research has indicated that a promotion dropping prices by 1 percent in a given month will increase sales in that month by 20 percent and bring forward 10 percent demand from each of the following two months. Thus, a 1 percent drop in price in March TABLE 9-4 Anticipated Monthly Demand at Lavare Month Demand Forecast Month Demand Forecast January 10,000 July 31,000 February 11,000 August 28,000 March 16,000 September 22,000 April 19,000 October 19,000 May 22,000 November 13,000 June 25,000 December 12,000 by 3,000 (=0.2 X 15,000) and shifts 1,800 (=0.1 X 18,000) units in demand from April and 2,500 (=0.1 X 25,000) units from May forward to March. a. What is the optimal production plan for the year if we assume no promotions？ What is the cost of this plan？ b. It is better to promote in April or July？ How much increase in profit can be achieved as a result？ c. If sinks are sold for $250 instead of $125., does the decision about the timing of the promotion change？ Why？
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