Question

You would like to construct an aggregate production plan for four quarters of 2021.

Product name: TRX3010

Cost of regular production = 50 $/u

Cost of overtime production = 65 $/u Inventory holding cost = 5 $/u/qtr

Cost of increasing production = 40 $/u Cost of decreasing production = 45 $/u Previous quarter's regular production = Beginning inventory level = 250 u

4200 u

The forecasted demand for the next four quarters is 3700, 4000, 2600, and 3900 units.

You want to set the quarterly regular production constant at 3200 units.

When needed, you will use overtime production.

You will keep inventory as low as possible but it must be at least 260 units per quarter. Stockouts are not allowed. In other words, quarterly demand must always be satisfied. You must perform all necessary calculations and summarize results in tabular form.

You must show clearly the regular production, overtime production, inventory, changes in regular production, and costs.

A brief explanation is needed. Explain if it is sufficient.

Answer 1

Aggregate plan based on level production with overtime strategy is following:

F H 1 Decrease (units) 4 5 A B с D E Level production with overtime Regular Overtime Ending Increase Quarter Demand 2 Production Production Inventory (units) 3 4,200 250 1 3,700 3,200 510 260 0 2 4,000 3,200 800 260 0 3 2,600 3,200 0 860 0 4 3,900 3,200 100 260 0 8 Total 14,200 12,800 1,410 1,640 0 9 Unit Cost $50 $ 65 $ 5 $ 40 10 Total Cost 640000 91650 8200 0 11 12 Total cost of this plan = 13 01 7 1,000 0 0 0 1,000 $ 45 45000 784850 14

EXCEL FORMULA:

А. B 1 3 с D E F G Level production with overtime Regular Quarter Demand 2 Production Overtime Production Ending Inventory Increase (units) Decrease (units) 4200 250 4 1 3700 3200 =MAX(0,+B4+260-E3-C4) =E3-B4+C4+D4 =MAX(0,C4-C3) =MAX(0,C3-C4) 5 2 4000 3200 =MAX(0,+B5+260-E4-C5) =E4-B5+C5+D5 =MAX(0,C5-C4) =MAX(0,C4-C5) 6 3 2600 3200 =MAX(0,+B6+260-E5-C6) =E5-B6+C6+D6 =MAX(0,C6-C5) =MAX(0,C5-C6) 7 4 3900 3200 =MAX(0,+B7+260-E6-C7) =E6-B7+C7+D7 =MAX(0,C7-C6) =MAX(0,C6-C7) 8 Total =SUM(B4:B7) =SUM(C4:07) ESUM(D4:07) =SUM(E4:E7) =SUM(F4:F7) ESUM(G4:47) 9 Unit Cost 50 65 5 40 45 10 Total Cost =C8*C9 =D8*D9 =E8*E9 =F8*F9 =G8*G9 11 12 Total cost of this plan = =SUM(C10:G10) 13 14 15

Brief explanation:

Regular production in the next four quarters is constant at 3200 units

Ending inventory of quarter 1,2 and 4 is 260 units; of quarter 3 is 860 units

Total increase and decrease in the next four quarters is 0 and 1000 respectively.

Total regular production cost is $ 640,000

Total overtime production cost is $ 91,650

Total inventory carrying cost is $ 8,200

Total cost of increasing production is $ 0

Total cost of decreasing production is $ 45,000

Total cost of the plan is $ 784,850

The plan is sufficient to meet the demand.