QUESTION 1 Q1-a1 When using the chase strategy, the total layoff cost in the nex

Question

QUESTION 1

Q1-a1 When using the chase strategy, the total layoff cost in the next four quarter is ___?

$40000

$48000

$36000

$54000

QUESTION 2

Q1-a2 What is the total cost of plan a (i.e., chase strategy)?

$235000

$197600

$214000

$208000

QUESTION 3

Q1-b1 What is the quarterly production in plan b (i.e., level strategy)?

1450 units/mquarter

1375 units/mquarter

1425 units/mquarter

1350 units/mquarter

QUESTION 4

Q1-b2 What is the total cost of plan b (i.e., the level strategy)?

$200000

$190000

$170000

$180000

$40000

$48000

$36000

$54000

01 Deb Bishop Health and Beauty Products has devel- oped a new shampoo, and you need to develop its aggregate schedule. The cost accounting department has supplied you the costs relevant to the aggregate plan, and the marketing depart ment has provided a four-quarter forecast. All are shown as fol wS: QUARTER FORECAST 1200 1500 1600 1400 COSTS Previous quarters output Beginning inventory Stockout cost for backorders Inventory holding cost 1,600 units 0 units $50 per unit 10 per unit for every unit held Hiring workers Layoff workers Unit cost at the end of the quarter $40 per unit $80 per unit S30 per unit Subcontr Not available Your job is to develop an aggregate plan for the next four quarters a) First, try hiring and layoffs (to meet the forecast) as necessary b) Then try a plan that holds employment steady Note for b): Use the average quarterly forecast as the level output rate per quarter ii) Shortage (or stockout) is allowed and will be fulfilled in the next period. ii Capacity adjustment cost from previous quarter to quarter 1 needs to be included

Explanation / Answer

Solution-

Chase Strategy- The basic funda of chase strategy is that we will produce only the required output in a given quarter by increasing or decreasing labour so that we dont have to bear the costs of stockout or holding inventory cost. I have calcuted the total cost in Excel for chase strategy as shown below-

Using the calculation above, We can easily answer the following questions-

1. Total Layoff cost= $48000. The trick here is to include the layoff from the previous quarter as well. Thus we can see that there are 2 layoffs. One is from previous quarter to 1st quarter, Second is from 3rd quarter to 4th quarter.

2. Total Cost = $2,35,000

Level Strategy- The basic funda in level strategy is that We cant hire or layoff workers(apart from coming from previous quarter to 1st quarter as its specifically mentioned in the question to include capacity adjustment from previous quarter to 1st quarter). Thus we have to keep an optimum level of workers throughout our quarters and then adjust the level of stockout and holding inventory to fulfill our orders. I have done the calculations required as shown below-

Thus we can answer the following questions-

3. Quarterly Production Output = Average of all quarter forecast = 1425

4. Total cost = If we dont have to include the capacity adjustment, then our total cost would be $186000.

Capacity adjustment cost from previous quarter to 1st quarter = (1600-1425)*80 = $14000

Thus Total cost = 186000 + 14000 = $ 200000

Quarter Production Plan Total Unit Cost Total Hiring Cost Total Layoff Cost Total Cost 0 1600 1 1200 36000 32000 68000 2 1500 45000 12000 57000 3 1600 48000 4000 52000 4 1400 42000 16000 58000 Total 5700 171000 16000 48000 235000

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