Question

Nowjuice, Inc., produces bottled pomegranate juice. A planner has developed an aggregate forecast for demand for the next six months.

Month            May                Jun                  jul                   Aug                 Sep                  oct

Forecast          4000                4800                5600                7200                6400                5000

Use the following information to develop aggregate plans.

Regular production cost          $ 10 per case

Regular production capacity 5000 cases

Overtime production cost       $ 16 per case

Subcontracting cost                $ 20 per case

Inventory cost                         $ 1 per case per month

Beginning inventory               0

1. Develop an aggregate plan using each of the following guidelines and compute the total cost for your plan. Use a combination of overtime (500 cases per period max. and min.) and subcontracting (500 cases per period maximum and 200 minimum) to handle variation in demand.
2. Repeat the plan if the company wants to follow a chase strategy.

Answer 1

1: Aggregate plan in tabular form

Month	Forecast	Production	Start Inventory	End Inventory	Inventory holding cost	Extra production needed	Extra production capacity done	Normal Production cost	Overtime cost	subcontract cost	Total ( Production +Inventory+ Overtime + Subcontract)
1	4000	5000	0	1000	1000	0		40000	0	0	41000
2	4800	5000	1000	1200	1200	0		48000	0	0	49200
3	5600	5000	1200	600	600	0		50000	0	0	50600
4	7200	5000	600	0	0	1600	1000( Capacity restriction)	50000	8000	10000	68000
5	6400	5000	0	0	0	1400	1000( Capacity restriction)	50000	8000	10000	68000
6	5000	5000	0	0	0	0		50000	0	0	50000
											326800

2: The chase strategy involve no inventory.

chase strategy is lean production and hence involve no carying cost . But here due to over time and subcontracting in third month cost shotup .

Hence in comparing the second method added more cost and hence chase strategy is not advisible .

Month	Forecast	Production	Normal Production cost	Overtime cost	subcontract cost	Total ( Production Overtime + Subcontract)
1	4000	4000	40000	0	0	40000
2	4800	4800	48000	0	0	48000
3	5600	5600	50000	4800	6000	60800
4	7200	7200	50000	8000	10000	68000
5	6400	6400	50000	8000	10000	68000
6	5000	5000	50000	0	0	50000
						334800