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 $330 per unit and inventory carrying cost is $6 per unit per quarter. Overtime production cost is $360 per unit. Assume that the 25 current Trexoid employees can produce a total of 50,000 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 $10,000 per employee and firing cost is $12,000 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 layof firing, if necessary, occur at the beginning of the quarter. Forecasted demand is as follows: Quarter1 Quarter 2 Quarter 3 Quarter4 20,000 units 20,000 units 66,000 unts 182,000 units a. Given the above demand estimate, develop a praduction plan based on level production. (Leave no cells blank be certain to enter "O" wherever required.) l Production Plan Regular roductio Ending Number of Quarter Demand Hire Fire 20,000 20,000 66,000 182.000 288,000 Total 0 b. Determine the cost of the level production plan. cost

Explanation / Answer

a. Average rate of production - 20000+20000+66000+182000 / 4 = 288000/4 = 72000

Plan under level strategy where no worker is hired or fired

b. Cost of plan

= Cost of production + Cost of inventory holding +hiring cost

= 288000x 330 + 266000 x6 + 11x10000 =95040000+1596000+110000

= 96746000

Quarter Demand Regular production Ending inventory No of workers Hire Fire 1 20000 72000 52000 36 11 0 2 20000 72000 104000 36 0 0 3 66000 72000 110000 36 0 0 4 182000 72000 0 36 0 0

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