Question

BreaknmyHip is preparing an aggregate production plan for snowboards for the next four quarters using a chase or demand matching strategy.

The company's expected quarterly demand is given in the following chart. The company will have 800 snowboards in inventory at the beginning of the year and wishes to maintain at least that number at the end of each quarter. Following is data you have been provided:
Production cost per unit = $91.00
Inventory carrying cost per quarter per unit = $1.00 (based on quarter-ending inventory)
Hiring cost per worker = $1,700
Firing cost per worker = $2,100
Beginning number of workers = 11
Each worker can produce 95 units per quarter.
Any worker on the staff at the end of the year will be fired at that time.
Given this data, what is the inventory carrying cost of a CHASE/DEMAND MATCHING plan?
options:

A. $1.00
B. Only LEVEL production plans have inventory carrying costs
C. $800
D. $2,000
E. $3,200

Answer 1

The inventory carrying cost for a chase or demand matching plan, given that the company maintains an inventory of 800 snowboards at the end of each quarter, would be $3,200 annually, which is $800 per quarter.

Step-by-step explanation:

The aggregate production plan using a chase or demand matching strategy aims to match production with demand each quarter, producing only the amount required to meet demand and maintain the desired ending inventory levels. Under this strategy, the company would not carry any excess inventory from one quarter to the next beyond the target ending inventory, since production matches demand and the beginning inventory. Therefore, given the information that the company starts with 800 snowboards in inventory and ends with the same amount, the inventory carrying cost would simply be the cost to carry the ending inventory for each quarter. Since the company intends to maintain at least 800 snowboards in inventory at the end of each quarter and the carrying cost per quarter per unit is $1.00, the inventory carrying cost per quarter would be 800 snowboards × $1.00 = $800. Assuming this cost is incurred in each of the four quarters, the total annual inventory carrying cost would be 4 × $800 = $3,200.