Question

Given the projected demands for the next six months, prepare an aggregate plan that uses inventory, regular time and overtime, and backorders. A level production cost rate of 150 units per month will be used. Backorder cost is $20 per unit, inventory holding cost is $5 per unit, regular time cost of $20 per unit, and beginning inventory is zero.

Month Forecast

1 190

2 150

3 150

4 150

5 120

6 140

What is the cost of this production plan?

Answer 1

The cost of the production plan is $ 21400

Backorder will be carried to next month's demand and hence i have used "Nett. demand"

Fixed production rate of 150 units / per month will be the monthly production plan

Cost of production plan is the summation of all monthly costs

Below is the working in tabulated form

Refer formulas from the table itself

	1	2	3	4	5	6
Monthly Forecast (A)	190	150	150	150	120	140
Nett. demand (B)	190	190	190	190	160	150
Production plan (C)	150	150	150	150	150	150
Backorder (D)	40	40	40	40	10	0
Inventory on Hand (J)	0	0	0	0	0	0
Regular time cost/ unit (E)	$20.00	$20.00	$20.00	$20.00	$20.00	$20.00
Monthly regular time cost F = (E *C)	$3,000.00	$3,000.00	$3,000.00	$3,000.00	$3,000.00	$3,000.00
Backorder cost / unit (G)	$20.00	$20.00	$20.00	$20.00	$20.00	$20.00
Monthly backorder cost H = (G *D)	$800.00	$800.00	$800.00	$800.00	$200.00	$0.00
Inventory holding cost /unit (I)	$5.00	$5.00	$5.00	$5.00	$5.00	$5.00
Monthly inventory holding cost K = (J *I)	$0.00	$0.00	$0.00	$0.00	$0.00	$0.00
Total Monthly cost (K + H + F)	$3,800.00	$3,800.00	$3,800.00	$3,800.00	$3,200.00	$3,000.00
Cost of production Plan	$21,400.00

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