Trexoid Inc. makes a popular video game console. Demand varies each month, with
ID: 332788 • Letter: T
Question
Trexoid Inc. makes a popular video game console. Demand varies each month, with highest demand coming in the last quarter of the year. Regular production costs are $290 per unit and inventory carrying cost is $4 per unit per quarter. Overtime production cost is $320 per unit. Assume that the 20 current Trexoid employees can produce a total of 50,000 units per quarter in regular production and can work enough overtime hours to produce the amount required if a chase plan is employed. On the other hand, hiring cost is $8,000 per employee and firing cost is $13,000 per employee. Trexoid currently has zero inventory on hand, and they would like to have zero inventories at the end of the year. Assume hiring and layoff/firing, if necessary, occur at the beginning of the quarter. Forecasted demand is as follows:
a. Given the above demand estimate, develop a production plan based on level production. (Leave no cells blank - be certain to enter "0" wherever required.)
b. Determine the cost of the level production plan.
c. Given the planning information, develop a production plan based on chase production. (Leave no cells blank - be certain to enter "0" wherever required.)
d. Determine the cost of the chase production plan.
Quarter 1 30,000 units Quarter 2 30,000 units Quarter 3 60,000 units Quarter 4 120,000 units
Explanation / Answer
Hi !
Please find below details.
Level Production Plan
Quarter
Demand
Regular Production
Ending Inventory
No. of Workers
Hire
Fire
1
30,000
30,000
0
20
0
0
2
30,000
30,000
0
20
0
0
3
60,000
60,000
0
24
4
0
4
120,000
120,000
0
24
0
0
Total
240,000
Quarter
Demand
Regular Production
Ending Inventory
No. of Workers
Production cost
Carrying cost
Hiring cost
Over time production cost
Overall cost
1
30,000
30,000
0
20
8700000
0
0
0
8700000
2
30,000
30,000
0
20
8700000
0
0
0
8700000
3
60,000
60,000
0
24
17400000
0
32000
0
17432000
4
120,000
120,000
0
24
17400000
0
0
19200000
36600000
Total
240,000
38432000
Chase Production plan – Overtime with stable workforce
Quarter
Demand
Regular Production
Overtime Production
Ending inventory
No. of Workers
1
30,000
30,000
0
0
20
2
30,000
30,000
0
0
20
3
60,000
60,000
0
0
24
4
120,000
60,000
60000
0
24
Total
240,000
Chase Production plan – Changing workforce levels
Quarter
Demand
Regular Production
Overtime production
Ending inventory
No. of Workers
Hire
Fire
1
30,000
30,000
0
0
20
0
0
2
30,000
30,000
0
0
20
0
0
3
60,000
60,000
0
0
24
4
0
4
120,000
60,000
60,000
0
24
0
0
Total
240,000
Total cost of chase production plan
3,84,32,000
Total cost if workforce is adjusted
6,99,92,000
Total cost if workforce is adjusted is calculated as follows: Assuming no overtime production utilized
Quarter 1: Production cost ($290 X 30,000) + Firing cost ($13000 X 8) = $88,04,000
Quarter 2: Production cost ($290 X 30,000) = $87,00,000
Quarter 3: Production cost ($290 X 60,000) + Hiring cost ($8000 X 12) = $1,74,96,000
Quarter 4: Production cost ($290 X 120,000) + Hiring cost($8000 X 24) = $3,49,92,000
Level Production Plan
Quarter
Demand
Regular Production
Ending Inventory
No. of Workers
Hire
Fire
1
30,000
30,000
0
20
0
0
2
30,000
30,000
0
20
0
0
3
60,000
60,000
0
24
4
0
4
120,000
120,000
0
24
0
0
Total
240,000
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