Question

Planners for a company that makes several models of skateboards are about to prepare the aggregate plan that will cover six periods. They have assembled the following information:Period 1 2 3 4 5 6 totalForecast 200 200 300 400 500 200 1800CostsOutput Regular Time = $2 per skateboardovertime = $3 per skateboardsubcontract = $6 per skateboardInventory = $3 per skateboardBack orders = $5 per skateboard per periodThey now want to evaluate a plan that calls for a steady rate of regular-time output, mainly using inventory to absorb the uneven demand but allowing some backlog. Overtime and subcontracting are not used because they want steady output. They intend to start with zero inventory on hand in the first period. Assume a level output rate of 300 units (skateboards) per period with regular time (i.e., 1,800/6 = 300). Note that the planned ending inventory is zero. There are 15 workers, and each can produce 20 skateboards per period.The president of the firm has decided to shut down the plant for vacation and installation of new equipment in period 4. After installation, the cost per unit will remain the same, but the output rate for regular time will be 450. Regular output is the same for periods 1, 2, and 3; 0 for period 4; and 450 for each of the remaining periods. Note, though, that the forecast of 400 units in period 4 must be dealt with.Prepare the aggregate plan, and compute its total cost. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Answer 1

Total costs = $4,850.

Please refer to the attached for the answered table.

Steady/fixed Production planning with the objective of saving on overtime and subcontract costs is a form of aggregate planning that organizations pursue in managing its total costs of production.

As a result of this model of planning, we will have inventory on hand in some periods and we will run partially or completely out of stock in others. But because the production unit is aware of their production targets , overtime will be zero and there will be no need for subcontracting.

However delayed order fulfillment will be made up for at additional costs as in the example we are solving. This provisions must be made for such eventualities.