Cost incurred in meeting the demands

During the next four months, a customer requires, respectively, 500, 650, 1000, and 700 units

of a commodity, and no backlogging is allowed (that is, the customer’s requirements must be

met on time). Production costs are $50, $80, $40, and $70 per unit during these months. The

storage cost from one month to the next is $20 per unit (assessed on ending inventory). It is

estimated that each unit on hand at the end of Month 4 can be sold for $60. Assume there is no

beginning inventory:

● Determine how to minimize the net cost incurred in meeting the demands for the next

four months.

● Use SolverTable to see what happens to the decision variables and the total cost when

the initial inventory varies from 0 to 1000 in 100-unit increments.

● How much lower would the total cost be if the company started with 100 units in

inventory, rather than none?

● Would this same cost decrease occur for every 100 -unit increase in initial inventory?

Sample Solution