Question

Check The current aggregate demand requirements for a firm are shown below for the next six months: Month May June July Aug Sept Oct 230 Demand 210 210 210 240 260 Click here for the Excel Data File The firm always plans to meet all demand. The firm currently has 230 workers capable of producing 230 units in a month (1 unit/worker). The workforce can be increased (at a cost of $500 per worker) or decreased (at a cost of $1,000 per worker). Inventory holding cost is $150 per unit per month. The firm currently has 30 units of inventory on hand, and it would like to have 30 units available at the end of each month. Regular production cost is $3,550 per unit. Assume hiring and layoff/firing, if necessary, occur at the beginning of the month. a. Develop an aggregate plan using a chase strategy, hiring and laying off as necessary, and carrying only the minimum safety stock in inventory. (Leave no cells blank be certain to enter "O" wherever required.) es Regular Production Ending Inventory 230 Number of Workers Month Demand Hire Fire May June July August September 230 210 210 210 210 210 210 240 240 October 260 260 Total 1,360 1,360 0

Answer 1

(a) Workforce is hired when production in the current period is higher than in last period

Hence, Hire = max (Production_t - Production_t-1, 0)

Workforce is fired when production in the current period is lower than in last period

Hence, Fire = max (Production_t-1 - Production_t, 0)

Ending Inventory increases when Production is greater than demand

Hence, Ending Inventory_t = max ( Ending Inventory_t-1 + Production - Demand , 0)

Ending Inventory from previous month = 30 and number of workers from previous month = 30

Calculating using the above formula

Month	Demand	Regular Production	Ending Inventory	Number of Workers	Hire	Fire
May	230	230	30	230	0	0
June	210	210	30	210	0	20
July	210	210	30	210	0	0
August	210	210	30	210	0	0
September	240	240	30	240	30	0
October	260	260	30	260	20	0
Total	1360	1360	180	1360	50	20

(b)

Total Cost of hiring = Number of hires * Cost/hiring = 50*500 = $25000

Total Cost of Firing = Number of Fires * Cost.fire = 20*1000 = $20000

Total Inventory Holding Cost = Total Inventory * Inventory Cost/month = 180*150 = $27000

Total Production Cost = Total Production * Production cost/unit = 1360*3550 = $4828000

Total Cost = 25000 + 20000 + 27000 + 4828000 = $4,900,000