Inventory Problem
A company knows that the deamnd for its product during each of the
next four months will be as follows:
Month | Demand
| 1 | 1 |
2 | 3 |
3 | 2 |
4 | 4 |
At the beginning of each month the company must determine how many
units should be produced during the current month. During a month in
which any units are produced, a setup cost of $3 is incurred. In
addition, there is a variable cost of $1 for every unit produced. At
the end of each month a holding cost of 50 cents per unit on hand is
incurred. Capacity limitations allow a maximum of 5 units to be
porduced during each month. The size of the company's warehouse
restricts the ending inventory for each month to at most 4 units. The
company wants to determine a production scheule that will meet all
demands on time and will minimize the sum of production and holding
costs during the four months. Assume that 0 units are on hand at the
beginning of the first month.