The Donald Fertilizer Company produces industrial chemical fertilizers. The proj

Question

The Donald Fertilizer Company produces industrial chemical fertilizers. The projected manufacturing requirements (in thousands of gallons) for the next four quarters are 80, 50, 80, and 130, respectively. Stockouts and backorders are to be avoided.

Prepare a level production strategy determining the level quarterly production rate required to meet total demand for the year. Beginning inventory is zero.

Suppose that the requirements for the next four quarters are revised to 80, 130, 50, and 80, respectively. What level of production rate is needed now?

Explanation / Answer

ans=

80 + 50 +80 + 130 /4 = 85 thousand gallons are needed to br produced each quarter to meet inventory demand for the year.

1st Quarter: 85,000 - 80,000 = 5000 gallons
2nd quarter: 85,000 - 50,000 = 35,000 + 5,000 in prior quarter = 40,000 gallons
3rd quarter: 85,000 -80,000 = 5,000 + 40,000 in prior quarters = 45,000 gallons
4th Quarter: 130,000-45,000-85,000 = 0 gallons
Since a shortage would occur in Quarter 2 if the minimum 85,000 gal. per quarter was produced, you would have to use the 1st 2 quarters needs of 80,000 + 130,000 = 210,000 / 2 = 105,000 per quarter. To keep level production and acoinf stockouts & undertime, this will cause the 3rd quarter production to have excess inventory of 105,000 - 50,000 = 55,000 and the 4th quarter to have 105,000-80,000 = 25,000 +55,000 = 80,000 gallons excess inventory.

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