Question

Borchers, Inc. build several models of widgets. You’ve been assigned the task of creating an aggregate production plan based on the data below. Monthly demand is shown for January, February and March. Your firm follows a level production plan with 25 workers and has an outsource vendor that can produce up to 1,000 units a month. The table shows this level production plan (25 workers, 8 hours per day, 20 days per month = 4,000 hours = 4,000 units). Widgets conveniently require 1 hour of labor to produce. Labor costs $30 per hour on regular time (hence, a unit produced on regular time costs $30) and outsourced units cost $45. Inventory costs $5 per unit and backorders cost $10 per unit. Assume your goal is to minimize cost. Please keep ending inventory as low as possible. Complete the table, giving answers for each letter shown. Also, what do I mean when I say an “aggregate production plan”? What makes this plan “aggregate”?

*** You can simply list letters A, B, C, ... and put a number next to each one

	January	February	March
Forecast Sales in units	4,400	5,700	4,000
Beginning inventory	0	A	B
Units Required	C (should be 4, Y00-beginning inventory)	D	E
Regular Production (8hrs420 days425 workers) = production	4,000	4,000	4,000
Subcontract - 1,000 maximum	F	G	H
Total Planned Units	I (should be 4,000 +F)	J	K
Ending Inventory	L (should be C-I)	M	N
Ending Backorders	Letter O	P	Q

Costs
Regular Production @ 30	$120,000	$120,000	$120,000
Subcontract @45	R	S	T
Inventory @ 5	U	V	W
Backorder @ 10	4	7	Z
Total	AA	BB	CC

Answer 1

We call it as an aggregate production plan since production levels for every month are interlinked. Beneath approach extends the ideal production plan for satisfying need and keeping the operational costs low.

C : 4000

A,B : 0

X,Y : 0
C : 4000
D : 5000
E : 4000
G,H : 4000
F : 0
I : 4000
J : 5000
K : 4000
L,M,N,O,P,Q : 0
R : 0
S : 45000
T : 0
X,Y,Z : 0
AA : 120000
BB : 165000
CC : 120000

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