Question

The following forecast constitutes the demand for relay switches. John Smith, the production planner, has assembled the following cost data and the quarterly demand forecast: QUARTER FORECAST 1,800 1 2 1,100 3 1,600 900 4 Costs/Other Data Previous quarter's output = 1300 cases Beginning inventory 350 cases Stockout cost = $110 per case Inventory holding cost $30 per case at the end of quarter Hiring employees = $40 per case Terminating employees = $75 per case Subcontracting cost = $60 per case Unit cost on regular time = $30 per case Overtime cost = $20 extra per case

Answer 1

a.

Plan A

Net production requirement in first-quarter = Demand in the first quarter-inventory in the beginning= 1800-350 = 1450

Net aggregate plan after adjusting inventory in the beginning will be:

Lay off 1300 Quarter Demand Regular production Ending Inventory Hire 350) 1 1450 1450 1100 1100 1600 1600 900 900 Total 5050 150 0 500 0 350 700 1050 650

Total cost comes out to be= Regular production cost+ inventory cost + hiring cost + layoff cost = 5050*30+0*30+650*40+1050*75 = $256250

b.

Plan B
Net production requirement =Sum of demands in all the quarters-inventory at the beginning = (1800+1100+1600+900)-350 = 5050

Thus the level of production required = 5050/4

Net aggregate plan after adjusting the beginning inventory would be:

Hire Lay off 350 1 Quarter Demand Regular production Ending Inventory Stock out 1300 1450 1262.5 2 1100 1262.5 1600 1262.5 900 1262.5 Total 5050 187. 5 0 37.5 25 00 362. 500 0 0 0 575 0 37.5

Total cost comes out to be = Regular production cost+ inventory cost + stockout cost + hiring cost + layoff cost = 5050*30+0+575*110+0+37.5*75= $217562.5

c.

Plan C

Net aggregate plan after adjusting the beginning inventory would be:

Lay off 0 100 Quarter Demand Regular production Ending Inventory Subcontracting Hire 1300 350 1450 1200 250 1200 100 3 1600 1200 0 900 1200 300 Total 4800 400 1100 300 0 550 0 100

Total cost comes out to be= Regular production cost+ inventory cost + subcontracting cost + hiring cost + layoff cost = 4800*30+400*30+550*60+0+100*75= $196500

d.

As the VP of for operations, I would choose plan C as the total cost incurred is less than other plans.

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