Question

A firm manufactures snow blowers. The demand for snow blowers follows a seasonal pattern with highs during the winter months and lows during the summer months. The firm’s cost data and sales forecasts are as given below.

Quarter	Sales Forecast (units)
Spring	80,000
Summer	50,000
Fall	120,000
Winter	150,000

Hiring cost is $100 per worker

Firing cost is $500 per worker

Inventory carrying cost is $0.50 per unit per quarter

Production per employee is 1,000 units per quarter

Beginning work force is 100 workers.  

a) Calculate a level plan

b) Calculate a chase plan

c) Which plan (level or chase) is economical ?

Answer 1

Quarter	Sales Forecast (units)	Production	Workers needed	Hiring	firing	beginning inventory	Ending inventory
Spring	80,000	100000	100	0	0	0	20000
Summer	50,000	100000	100	0	0	20000	70000
Fall	120,000	100000	100	0	0	70000	50000
Winter	150,000	100000	100	0	0	50000	0

cost of level strategy

= production cost + inventory cost = PC+ avg inventory x0.5 =PC+140000x0.5

= PC+70000

2. Chase strategy

Quarter	Sales Forecast (units)	Production	Workers needed	Hiring	firing
Spring	80,000	80000	80	0	20
Summer	50,000	50000	50	0	30
Fall	120,000	120000	120	70	0
Winter	150,000	150000	150	30	0

cost of this strategy = Production cost + hiring cost + firing cost

= PC + 100x100 +50x500

= PC + 35000

Chase plan is more economical by 35000.