Suppose that, in a competitive market without government regulations, the equilibrium price of donuts is $1.50 each. Complete th
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Answer:
Minimal Net cost: $ 335,000
Explanation:
In order to minimize net costs, the first step is to obtain the unitary cost including all the concepts: production + storage
The period with lower production cost is Month 1 ( $ 80 ) , and after adding storage cost ( $ 20 ) it sums $ 100.
The second Month is the next convenient one in terms of production costs ( $ 100 ).
However, is not convenient to produce the whole demand in this periods because the extra stock remaining will increase storage expenses, specially considering that storage cost is accumulative ( $ 20 per unit per each end of month).
Remaining inventory after Month 4: not efficient, as $ 60 does not cover production cost.
Therefore, the best option is:
Month 1 : to produce from 600 up to 1,400 units
Month 2 : to produce from 0 up to 800 units, according to Month 1 production ( formula= 1,400 less Month 1 production)
Month 3 : 1,200 units
Month 3 : 900 units.
Net cost: $ 335,000
*Optionally, it is correct producing 600 u in Month 1, and 800 u in Month 2: the result is the same ( Month: 1 $ 80 + $ 20 = Month 2: $ 100 )
