We are formulating an aggregate plan for an 8-quarter period. Our demand forecas

Question

We are formulating an aggregate plan for an 8-quarter period. Our demand forecast is as follows:

We will enter Quarter 1 with 0 units in inventory and the capacity to produce 200 units per quarter without overtime. Increasing regular-time capacity has been estimated to cost $30 per unit. Reducing regular-time capacity has been estimated to cost $20 per unit. Overtime production costs $10 per unit.

Carrying inventory (or having backorders) is not permitted. By policy, overtime production is limited to a maximum of 30 units per month. Idle time (i.e., having more regular-time capacity than is necessary) is not permitted.

If we used a chase planning approach (with overtime) in this situation, what would our minimum total (Capacity Increase + Capacity Decrease + Overtime) cost be?

Quarter 1 2 3 4 5 6 7 8 Forecast 220 340 420 300 240 360 440 320

Explanation / Answer

Given:

Minimum cost (Capacity Increase+Capacity decrease+ Overtime)

So your total cost will be all of the following put together.

Quarter 1 2 3 4 5 6 7 8 Forecast 220 340 420 300 240 360 440 320

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