parts Inc., produces cooking oil. a planner has developed an aggregate forecast

Question

parts Inc., produces cooking oil. a planner has developed an aggregate forecast for demand (in cases) for the next four months months march 1200 april 9800 may 5200 june 18000.

regular production cost: $14.75 / case

regular production capactity: 12500 cases

overtime production cost: $32.50 / case

subcontracting cost: $80/case

holding cost: $5 / case/ month

Beginning inventory: 1,000 cases

develop an aggregate plan using a level production to compute the total cost for the plan. supplement using overtime as needed. note: backlogs are not allowed.

Explanation / Answer

March April May June Forecast (a) 1200 9800 5200 18000 Beginning inventory (b) 1000 8100 6600 9700 Regular Production (c - Note 1) 8300 8300 8300 8300 Overtime production (d - Note 1) 0 0 0 0 Total production (e = c+d) 8300 8300 8300 8300 Ending inventory (f = b+e-a) 8100 6600 9700 0 Average Inventory (g=b+f/2) 4550 7350 8150 4850 March April May June Regular Production Cost (h = $14.75 * c) $122,425 $122,425 $122,425 $122,425 Overtime (i = $32.50 * d) $0 $0 $0 $0 Inventory/Holding Cost (j = $5 * g) $22,750 $36,750 $40,750 $24,250 Total $145,175 $159,175 $163,175 $146,675 Total cost $614,200 Note 1- Under Level Production, workforce is kept constant and equal production is done in each period Total Forecast 34200 Less: Beginning Inventory 1000 Total Production Required (a) 33200 # Period (b) 4 Production per period (a/b) 8300 Regular Capacity 12500 Since Regular capacity is more than production required, hence no overtime required

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