Humboldt Corporation is preparing an aggregate production plan for fasteners for
ID: 3369646 • Letter: H
Question
Humboldt Corporation is preparing an aggregate production plan for fasteners for the next four quarters. The company’s expected quarterly demand is given in the following table. The company will have 1,000 fasteners in inventory at the beginning of the year and wishes to maintain at least that number at the end of each quarter. Following is other critical data:
Production cost per unit = $250
Inventory carrying cost per quarter per unit = $10 (based on quarter-ending inventory)
Hiring cost per worker = $1,000
Firing cost per worker = $2,000
Beginning number of workers = 10
Each worker can produce 100 units per quarter.
Any worker on the staff at the end of the year will not be fired at that time.
Quarter
Demand
Regular Production
Overtime
Ending Inventory
Workers Required
Hire
Fire
1
4,000
2
6,000
3
3,000
4
7,000
Total
20,000
Given the above information, what is the total cost of a level plan?
Quarter
Demand
Regular Production
Overtime
Ending Inventory
Workers Required
Hire
Fire
1
4,000
2
6,000
3
3,000
4
7,000
Total
20,000
Explanation / Answer
Answer
Option (b) is the right answer
i.e $5110000 is the total cost of a level plan.
Solution :-
Hence; If satisfied like it.
Leave Plan Beginning Inventory: 1000 Beginning Workers: 10 Quarter Demand Regular Production Ending Inventory Workers Required Hire Fire 1 4,000 5000 2,000 50 40 2 6,000 5000 1,000 50 0 3 3,000 5000 3,000 50 0 4 7,000 5000 1,000 50 0 Total 20,000 20,000 7,000 200 0 Regulare Production = Total Production / 4 quarter = 20000 / 4 Quarters = 5000 Fasterns Ending Inventory = Opening + Production - Demand = 1000 + 5000 - 4000 = 2000 Fasteners Workers Required = Total production / Time required = 5000units / 100Hrs = 50 = 50 - 10 (Beginning Workers) = 40 New hire TOTAL COST OF A LEVEL PLAN Paticulars Calculation Amount Production Cost = 20000units X $250 $ 5,000,000.00 Inventory Carrying Cost = 7000units X $10 $70,000.00 Hiring Cost = 40 Workers X $1000 $ 40,000.00 Total Cost $ 5,110,000.00Related Questions
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