Tampa\'s Soda Pop, Inc., has a new fruit drink for which it has high hopes. Don

Question

Tampa's Soda Pop, Inc., has a new fruit drink for which it has high hopes. Don Hammond, the production planner, has assembled the following cost data and demand forecast: Don's job is to develop an aggregate plan. The three initial options he wants to evaluate are: a) Plan A: a chase strategy that hires and fires personnel as necessary to meet the forecast. b) Plan B: a level strategy/c) Plan C: a level strategy that produces 1, 200 cases per quarter and meets the forecasted demand with inventory and subcontracting. d) Which strategy, is the lowest-cost plan? e) If you are Don's boss, the VP for operations, which plan do you implement and why?

Explanation / Answer

A. Chase Strategy - Hire and Fire Q1 Q2 Q3 Q4 Forecast A 1,800 1,100 1,600 900 Beginning inventory B 0 0 0 0 Production required C = A-B 1,800 1,100 1,600 900 Regular production Available D 1,800 1,800 1,800 1,800 Actual Production E = C 1,800 1,100 1,600 900 Overtime production F=D-E,if0 0 0 0 Stock Out J = C - H 450 200 450 0 Workers hired per case H 50 0 0 0 Workers laid off per case I 0 0 0 0 Q1 Q2 Q3 Q4 $    $    $    $    Regular Cost @ $30 per case $ 30 * E 40,500 40,500 40,500 40,500 Overtime @ $45 per case $ 45 * F 0 0 0 0 Inventory @ $ 40 per case $ 40 * I 0 0 0 0 Subcontracting @ $60 per case $ 60 * G 0 0 0 0 Stock Out Cost @ $150 per case $ 150 * J 67,500 30,000 67,500 0 Hiring Cost @ $40 per case $ 40 * H 2,000 0 0 0 Terminating Cost @ 80 per case $ 80 * I 0 0 0 0 Total Cost $329,000.00 110,000 70,500 108,000 40,500 C. Level Strategy with Inventory and Subcontracting Workers Laid off = 1300 ( last period production) - 1200 = 100 Q1 Q2 Q3 Q4 Forecast A 1,800 1,100 1,600 900 Beginning inventory B = Last Q closing 0 0 100 0 Production required C = A-B 1,800 1,100 1,500 900 Regular production Available D 1,200 1,200 1,200 1,200 Actual Production E = D 1,200 1,200 1,200 1,200 Overtime production F 0 0 0 0 Subcontracting production G = C - E 600 0 300 0 Total production H = E+F 1,800 1,200 1,500 1,200 Closing Inventory I = H - C, if>0 0 100 0 300 Stock Out J = C - H 0 0 0 0 Workers hired per case H 0 0 0 0 Workers laid off per case I 100 0 0 0 Q1 Q2 Q3 Q4 $    $    $    $    Regular Cost @ $30 per case $ 30 * E 36,000 36,000 36,000 36,000 Overtime @ $45 per case $ 45 * F 0 0 0 0 Inventory @ $ 40 per case $ 40 * I 0 4,000 0 12,000 Subcontracting @ $60 per case $ 60 * G 36,000 0 18,000 0 Stock Out Cost @ $150 per case $ 150 * J 0 0 0 0 Hiring Cost @ $40 per case $ 40 * H 0 0 0 0 Terminating Cost @ 80 per case $ 80 * I 4,000 0 0 0 Total Cost $218,000.00 76,000 40,000 54,000 48,000 The lowest cost strategy is a level strategy that produces 1200 cases per quarter and meets the forecast demand with inventory and subcontracting

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