Question

1. A manager has prepared a forecast of expected aggregate demand. Develop an aggregate plan that assumes: A level production rate, back orders are allowed and are charged at the rate of $15 per unit per month, inventory holding costs are $2 per unit per month in average inventory, regular time cost is $7 per unit and beginning inventory is zero. Show the aggregate plan and determine the cost of this plan. (15 pts)

Month                   Forecast

1. 270
2. 310
3. 280
4. 350
5. 310

6.280

SHOW EXCEL FORMULA!!!

Answer 1

For level production plan;

Production per Month = (Sum of total forecast for all period – beginning inventory - ending inventory)/ number of Months

Where,

Total forecast for all period = 270 + 310 +280 + 350 + 310 +280= 1800 units

Beginning inventory = 0 units

Ending inventory = 0

Number of Months = 6

Therefore,

Production per Month = (1000 – 0 + 0)/6

= 1800/6 = 300 units per month

Production under level plan is 300 units per month

Aggregate Plan -Level Strategy
Month	1	2	3	4	5	6	Total
Forecast	270	310	280	350	310	280	1800
Beginning Inventory	0	30	20	40	0	0
Regular Production	300	300	300	300	300	300	1800
Ending Inventory	30	20	40	0	0	0
Average Inventory (Beginning inv. + ending inv.)/2	15	25	30	20	0	0
Backorder	0	0	0	10	20	0
Cost:
Regular Production cost ($7 per unit)	$2,100	$2,100	$2,100	$2,100	$2,100	$2,100	$12,600
Inventory holding cost ($2 per unit/month)	$30	$50	$60	$40	$0	$0	$180
Backorder cost ($15 per unit/month)	$0	$0	$0	$150	$300	$0	$450
Total Cost (Per Month)	$2,130	$2,150	$2,160	$2,290	$2,400	$2,100	$13,230

Formulas used in excel calculation: