The Academic Company mixes and bottles a high-energy beverage in various contain
ID: 393204 • Letter: T
Question
The Academic Company mixes and bottles a high-energy beverage in various container types and sizes for college students. The aggregate forecast for the next four quarters (1 year) in thousands of gallons is as follows:
Table 1
QUARTER
FORECAST DEMAND PER 1,000 GALLONS
1
400
2
700
3
850
4
650
TOTAL:
2,600
Academic’s management makes the following assumptions:
Each employee works 550 standard hours of regular time each quarter.
On average, it takes 27 hours to produce and package 1 unit (1,000 gallons).
Regular-time labor costs $6.00/hour; overtime labor costs $9.00/hour.
Inventory-holding cost is approximately $4.50/unit (1,000 gallons) per quarter based upon the ending inventory per quarter.
Because of extremely hot weather, there is no beginning inventory available to start Quarter 1.
Management wants a constant work force (no hiring or firing).
Managers have also decided to always round up the number of employees needed to the next whole integer, i.e., 37.2 yields 38 employees.
Using the data in Table 1, if management decides on a chase strategy, with production in the last quarter of 600 units and a rate change cost of $3.00/1000 gallons, determine the yearly cost of rate change (hiring and firing).
$3,900
$7,800
$2,550
$1,950
QUARTER
FORECAST DEMAND PER 1,000 GALLONS
1
400
2
700
3
850
4
650
TOTAL:
2,600
Explanation / Answer
For a chase strategy, production will be equal to demand. The rate change is the absolute change in production from one quarter to the other.
The total rate change is 850 ( x 1,000) units. So, the cost is $3 x 850 = $2,550
Qtr. Demand Production Rate change 0 600 1 400 400 200 2 700 700 300 3 850 850 150 4 650 650 200 TOTAL 2600 2600 850Related Questions
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