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question: Josh, Inc. is faced with the choice of either producing a newly designed product, XX-SD, to stock in anticipation of demand or to customer order.

Question: Josh, Inc. is faced with the choice of either producing a
newly designed product, XX-SD, to stock in anticipation of demand
or to customer order. The demand for the product is expected to be
5,000 units per week. Josh decided to produce XX-30 in lots of 500
units. The cost of holding the average unit in inventory per year is
$50 times the average inventory level. IfJosh, Inc. produces to
order, it must discount its unit price on all sales $5 for each week
that the first customer to order has to wait before the product is
delivered. Should Josh, Inc. produce to stock orto order? Answer: Josh, Inc. should utilize a make-to-stock approach since we have a known forecast (assuiming it’s accurate) and customer
demand. Show Your Work: Since we have a known forecast and customer demand, we should multiply 5,000
units per week by 52 weeks per yea r, which should come to a total of 260,000 units. (5,000 * 52 = 260,000) To calculate the average inventory level, we must divide 500 by 2 and then multiply by $50 which should
equal $12,500 annually ((500/2) * $50 = 250 "‘ $50 = $12,500) We have a discount of 260,000 which we then multiply by $5 which should come to a total of $1,300,000.
We then add $12,500. ((260,000 * $5) + $12,500 = $1,300,000 + $12,500 = $1,312,500) Assuming the forecast is accurate, Josh, Inc. can avoid a loss of $1.3 million by taking a make-to-stock approach.

 
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