Question

Which is not main categories of cost relevant to aggregate operations planning?

A.		Basic production costs
B.		Costs associated with changes in productions rate
C.		Inventory ordering costs
D.		Backorder costs
E.		Inventory holding costs

Answer 1

OPTION C- (Inventory ordering cost) is not the main category of costs relevant to aggregate operations planning.

Aggregate planning is a planning process which concerns with planning and matching the demand and supply of a product over a certain time period. It gives an idea to the management about the future demand forecast, cost of various alternatives which can be used by the firm to produce a certain product at a cheaper price. It helps in minimising inventory, investment and production rates. And it helps in maximising customer satisfaction and proper utilization of resources. There are four costs which are relevant to aggregate operations planning and which are as follows-

1) Basic production cost- These are te cost which is incurred by the organization to produce a particular product in a specific time period.

2) Costs associated with changes in production rates- These are the costs which are involved in hiring, training and layoff of the employees.

3) Backorder costs- These are the cost which happens due to loss of sales revenue from the backorder as well as loss of customer goodwill.

4) Inventory holding costs- These are the cost which involved in holding the inventory of the organization.