Osprey Fabrication has the following aggregate demand requirements and other dat
ID: 462923 • Letter: O
Question
Osprey Fabrication has the following aggregate demand requirements and other data for the upcoming four quartersOsprey Fabrication has the following aggregate demand requirements and other data for the upcoming four quarters
Quarter
Demand
Previous quarter's output
1300 units
1
1400
Beginning inventory
0 units
2
1200
Stockout cost
$50 per unit
3
1600
Inventory holding cost
$10 per unit at end of quarter
4
1500
Hiring workers
$40 per unit
Laying off workers
$80 per unit
Subcontracting cost
$60 per unit
Unit cost
$30 per unit
Overtime
$15 extra per unit
Which of the following production plans is better: Plan A–chase demand by hiring and layoffs; Plan B–pure level strategy, or Plan C–1350 level with the remainder by subcontracting?
Quarter
Demand
Previous quarter's output
1300 units
1
1400
Beginning inventory
0 units
2
1200
Stockout cost
$50 per unit
3
1600
Inventory holding cost
$10 per unit at end of quarter
4
1500
Hiring workers
$40 per unit
Laying off workers
$80 per unit
Subcontracting cost
$60 per unit
Unit cost
$30 per unit
Overtime
$15 extra per unit
Which of the following production plans is better: Plan A–chase demand by hiring and layoffs; Plan B–pure level strategy, or Plan C–1350 level with the remainder by subcontracting?
Explanation / Answer
Plan A:
For the chase demand strategy, production each quarter matches demand
Cost of Chase demand strategy= 5700*30 +400*40 + 300*80
= $211,000
Plan B: Level Strategy
For level production
average quaterly demand= (1400+1200+1600+1500)/4
= 1425
cost of level production strategy= 5700*30 + 350*10
=$174,500
Plan C:
total cost = 5700*30 + 450*60
= $198,000
On comparing three strategies, Plan B is better than other two
Quarter Demand Regular Production Worker needed Workers hired Workers Fired 1 1400 1400 1400 0 2 1200 1200 1200 200(1400-1200) 3 1600 1600 1600 400 (1600-1200) 0 4 1500 1500 1500 100(1600-1500) Total 5700Related Questions
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