Question

Manager T. C. Downs of Plum Engines, a producer of lawn mowers and leaf blowers, must develop an aggregate plan given the forecast for engine demand shown in the table. The department has a regular output capacity of 135 engines per month. Regular output has a cost of $60 per engine. The beginning inventory is zero engines. Overtime has a cost of $100 per engine.

	Month
	1	2	3	4	5	6	7	8	Total
Forecast	120	135	140	120	125	125	140	135	1,040

a. Develop a chase plan that matches the forecast and compute the total cost of your plan. Regular production can be less than regular capacity. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required.)

Period	1	2	3	4	5	6	7	8	Total
Forecast	120	135	140	120	125	125	140	135	1040
Output	—-	——	—	—-	——	—-	——	—	—
Regular
Overtime
Output — Forecast									—
Costs	—-	—-	——	—-	——	—-	—-	—-	——
Output	—-	—-	—	—	-	—	-	—-	—-
Regular
Overtime
Total

b. Compare the costs to a level plan that uses inventory to absorb fluctuations. Inventory carrying cost is $2 per engine per month. Backlog cost is $120 per engine per month. There should not be a backlog in the last month. Set regular production equal to the monthly average of total forecasted demand. Assume that using overtime is not an option. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Round average inventory row, Inventory cost row, and Total row values to 1 decimal.)

Period	1	2	3	4	5	6	7	8	Total
Forecast	120	135	140	120	125	125	140	135	1040
Output	—	—	—	—	-	—-	—-	—-	—-
Regular
Output-Forcast									—-
Inventory	—	—-	—-	—-	—-	—-	—-	—-	—-
Beginning									——
Ending									——
Average									——
Backlog									——
Costs									——
output									——
Regular
Inventory
Back order
Total

Answer 1

a.

The aggregate plan using the chase strategy would be as below:

S.no	Period	1	2	3	4	5	6	7	8	Total
1.	Forecast	120	135	140	120	125	125	140	135	1040
2.	Output
	Regular	120	130	130	120	125	125	130	130	1010
3.	Cost's:
	Regular @60	7200	7800	7800	7200	7500	7500	7800	7800	60600
	Overtime @100	0	500	1000	0	0	0	1000	500	3000
4.	Total	7200	8300	8800	7200	7500	7500	8800	8300	63600

The total cost using the chase strategy would be $63600

b.

A level strategy were to be used. With inventory carrying cost of $2 per engine per month and backlog costs of $90 per engine per month, the aggregate plan would be as follows:

S.no	Period	1	2	3	4	5	6	7	8	Total
1.	Forecast	120	135	140	120	125	125	140	135	1040
2.	Output
	Regular	130	130	130	130	130	130	130	130	1040
3.	Output - Forecast	10	-5	-10	10	5	5	-10	-5	0
4.	Inventory
	Beginning	0	10	5	0	5	10	15	5
	Ending	10	5	0	5	10	15	5	0
	Average	5	7.5	2.5	2.5	7.5	12.5	10	2.5	50
5.	Backlog	0	0	5	0	0	0	0	0	5
6.	Cost's:
	Regular @ 60	7800	7800	7800	7800	7800	7800	7800	7800	62400
	Inventory @ 2	10	15	5	5	15	25	20	5	100
	Back order's @ 120	0	0	600	0	0	0	0	0	600
7.	Total	7810	7815	8405	7805	7815	7825	7820	7805	63100

The total cost for a level strategy would be $63,100

Therefore,

Therefore, the level strategy would, in this case, be less costly than the chase strategy by $63600 - $63,100 =$ 500

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