A manager has prepared a forecast of expected aggregate demand for the next six

Question

A manager has prepared a forecast of expected aggregate demand for the next six months. Develop an aggregate plan to meet this demand given this additional information: A level production rate of 100 units per month will used. Backorders are allowed, and they are charged at the rate of $8 per unit per month. Inventory holding costs are $1 per unit per month. Determine the cost of this plan if regular time cost is $25 per unit and beginning inventory is zero.

Month Forecast

1 80

2 120

3 110

4 80

5 110

6 100

Explanation / Answer

As overtime is not given in the question and total demand is 600 units for 6 months and per month production is only 100 units. So, each month company has to produce 100 units.

Period Demand Regular Production Beginning Inventory Ending Inventory Backlog 1 80 100 0 20 0 2 120 100 20 0 0 3 110 100 0 0 10 4 80 100 0 20 0 5 110 100 20 10 0 6 100 100 10 10 0 Total 600 600 20 40 10 Unit Cost 25 1 8 Total cost 15120 ((25*600)+(40*1)+(10*8))

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