A firm must plan production for the next six months. Each unit costs $470 to pro

Question

A firm must plan production for the next six months. Each unit costs $470 to produce and it has an inventory holding cost of $19 per unit per month based on ending inventory levels. The cost to hire a worker is $320, and the cost to fire a worker is $640 per worker. Each worker produces 10 units per month. There are 25 persons on the payroll at the beginning of the first month. The company currently has 200 units of inventory in stock, and it wants to keep at least this many units as safety stock at the end of every month. Assume hiring and layofffiring, if necessary, occur at the beginning of the month Month Demand 410 410 410 410 460 540 a. From the information given above, what level production rate will meet demand for the next six months? Using that rate, complete the level plan below (Leave no cells blank - be certain to enter "O" wherever required.) Plan Number of Regular Ending Hire Fire Month DemandProduction 410 410 410 410 460 540 2,640 Total b-1. At that production rate, what is the maximum end-of-period inventory experienced at some time during the six months? units b-2. What would be the cost of a level production plan?

Explanation / Answer

Given Information :

Unit costs = $250

Inventory holding cost = $10 per unit per month

Cost to hire a worker = $100

Cost to fire a worker = $200 per worker.

Capacity of a worker = 10 units per month.

No of workers on pay roll = 20 persons

(at the beginning of the first month. )

Inventory = 100 units ( Can be treated as safety stock )

a) Following is the “level” production rate will meet demand for the next six months

b) Here the Inventor as a safety stock kept . So the

Maximum inventory = 100

Cost = $ 6000 (For Six months)

c) Total cost =

$ 534090

Month 1 2 3 4 5 6 Demand 300 300 300 300 400 500 Unit Cost $250 75000 75000 75000 75000 100000 125000 No of workers 20 & Capcity is 10 units per worker 200 200 200 200 200 200 Units needs to be prodcued with extra workers 100 100 100 100 200 300 Required Workers 10 10 10 10 20 30 Cost of Hire Workers $100 1000 0 0 0 1000 1000 Inventroy Holding Cost as a Saftey stock 100 Nos 1000 1000 1000 1000 1000 1000 Cost to Fire Workers 0 0 0 0 0 0 Total Cost 77000 76000 76000 76000 102000 127000

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