Trexoid Inc. makes a popular video game console. Demand varies each month, with

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 $130 per unit and inventory carrying cost is $4 per unit per quarter. Overtime production cost is $160 per unit. Assume that the 12 current Trexoid employees can produce a total of 30,000 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 $5,500 per employee and firing cost is $10,500 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.

Total cost

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.

Total cost if workforce size adjusted

Quarter 1 20,000 units Quarter 2 20,000 units Quarter 3 50,000 units Quarter 4 70,000 units

Explanation / Answer

In level production the production over different periods remain stable, the workforce also remain stable.

12 workers produce 30000 per quarter. 1 worker produces = 30000/12 = 2500 units per quarter.

We hire 4 workers more to produce 20000 per quarter in level production. as shown below

b)

Total cost of level production = hiring cost + regular production cost + inventory cost

= 4*5500 + 160000*130 + 90000*4

= 22000 + 20800000 + 360000

= 21182000

c)

under chase production plan, we use normal regular production for all months, and use overtime when required as shown in table below:

30000

d) Total cost of overtime production = regular production + overtime production + inventory

= 120000*130 + 40000*160 + 30000*4

= 15600000 + 6400000 + 120000

= 22120000

c) chase production plan with changing workforce levels

we hire 16 workers in the last quarter to fulfill the demand.

d) Total cost chase production plan with changing workforce levels = regular production + inventory + hiring cost

= 160000*130 + 30000*4 + 16*5500

= 20800000 + 120000 + 88000

= 21008000

Level Production Plan Quarter Demand Regular Production Ending Inventory Number of Workers Hire Fire 1 20,000 40000 20000 16 4 0 2 20,000 40000 40000 16 0 0 3 50,000 40000 30000 16 0 0 4 70,000 40000 0 16 0 0 Total 160,000 160000 90000 16 0 0

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