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 1800
2 1100
3 1600
4 900
Costs/Other Data
Previous quarter’s output = 1300 cases
Beginning inventory = 350 cases
Stock-out 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
John's job is to develop an aggregate plan. The three initial options he wants to evaluate are
Plan A: a strategy that hires and fires personnel as necessary to meet the forecast
Plan B: a level strategy
Plan C: a level strategy that produces 1,200 cases per quarter and meets the forecast demand with inventory and subcontracting.
a. What is the cost of plan A?
b. What is the cost of plan B?
c. What is the cost of plan C?
d. If you are John's boss, the VP for operations, which plan do you implement and why?

Answer 1

a. $256,250

b. $217,562.5

c. $196,500

d. Plan C, due to its fewer total cost incurred compares to the other two plans.

Step-by-step explanation:

a. What is the cost of Plan A

b. What is the cost of Plan B

c. What is the cost of plan c.

d. If you are John's boss, the VP operations, which plan would you implement and why?

Please find attached detailed solution to the above questions.