Question

How would you calculate...

Number of workers

units produced and

ending inventory

In this problem for each of the 6 periods, only for the level strategy, thanks in advance.

Manufacturing Aggregate Planning

Manufacturers Inc. (MI) currently has a labor force of 10, which can produce 600 units per period. The labor cost is now $5000 per period per employee. The company has a long-standing rule that does not allow it to make use of any overtime. In addition, the product cannot be subcontracted, due to the specialized nature of the machinery that MI uses to produce it. As a result, MI can only increase/decrease production by hiring or laying off employees. The cost is $10000 to hire or lay off an employee. Inventory carrying costs are $200 per unit for any unsold items at the end of the period. The inventory level at the beginning of period 1 is 400 units. The forecast demand is 700 in period 1, 600 in period 2, 450 in period 3, 250 in period 4, 500 in period 5, and 550 in period 6.

a.) Compute the costs of the Chase Demand Strategy.

b.) Compute the costs of the Level Strategy

c.) Compare the costs of the two strategies. Which one is superior?

Answer 1

Chase Strategy

10 employee produce 600 units

1 will produce =60 units and it costs $5000 per employee

So unit regular cost = 5000/60= $83.33

Hiring/firing cost = 10000

Per unit cost for hiring/firing = 10000/60=$166.67

	Demand	Regular time Capacity	Regular time production	Units increase	Units decrease
Initial Inventory = 400
Period 1	700	600	300	0	0
Period 2	600	600	600	300	0
Period 3	450	600	450	0	150
Period 4	250	600	250	0	200
Period 5	500	600	500	250	0
Period 6	550	600	550	50	0
Total(units)	3050	3600	2650	600	350
			@$83.33 /unit	@$166.67 /unit	@$166.67 /unit
Subtotal Costs		$220824.5	$100002	$58334.5
Total Cost	$379161

b) Level Strategy

Total demand for 6 periods = 3050

Average production required= 3050/6=508.33=509 units

	Demand	Regular time Capacity	Regular time production	Inventory (end PD)
Initial Inventory				400
Period 1	700	600	509	209
Period 2	600	600	509	118
Period 3	450	600	509	177
Period 4	250	600	509	436
Period 5	500	600	509	445
Period 6	550	600	509	404
Total(units)	3050	3600	3054	1789
			@$83.33 /unit	@$200 /unit
Subtotal Costs			254489.8	357800
Total Cost	$612289.82

c) Comparing the costs of two strategies we can say that chase strategy gives lesser cost and we can select that