Southeast Soda Pop, Inc has a new fruit drink for which it has high hopes. John

Question

Southeast Soda Pop, Inc has a new fruit drink for which it has high hopes. John Mittenthal, the production planner, has assembled the following cost data and demand forecast:

Previous quarters output= 1300 cases

Beginning inventory= 0 cases

Stockout cost= 150 per case

Inventory holding cost= $40 per case at end of quarter

Hiring employees= $40 per case

Terminating employees= $80 per case

Subcontracting cost= $60 per case

Unit cost on regular time= $30 per case

Overtime cost= $15 extra per case

Capacity on regular time= 1800 cases per quarter

John's job is to eevelop an aggregate plan. The three initial options he wants to evaluate are:

A) a strategy that hires and fires personnel as necessary to meet the forecast

B) a level strategy

C) a level strategy that produces 1200 cases per quarter and meets the forecast demand with inventory and subcontracting

a) which strategy is the lowest-cost plan?

b) if you are john's boss, the VP for operations, which plan do you implement and why?

Quarter Forecast 1 1800 2 1100 3 1600 4 900

Explanation / Answer

.

Negative figure means workers hired and postive means workers laid off

A. Hire and Fire Strategy Q1 Q2 Q3 Q4 Forecast A 1,800 1,100 1,600 900 Beginning inventory B 0 0 0 0 Production required C = A-B 1,800 1,100 1,600 900 Regular production Available D 1,800 1,800 1,800 1,800 Actual Production E = C 1,800 1,100 1,600 900 Overtime production F=D-E,if<0 0 0 0 0 Subcontracting production G 0 0 0 0 Total production H = E+F 1,800 1,100 1,600 900 Closing Inventory I = B+G-A 0 0 0 0 Stock Out J 0 0 0 0 Workers hired per case H 500 0 500 0 Workers laid off per case I 0 700 0 700 Q1 Q2 Q3 Q4 $    $    $    $    Regular Cost @ $30 per case $ 30 * E 54,000 33,000 48,000 27,000 Overtime @ $45 per case $ 45 * F 0 0 0 0 Inventory @ $ 40 per case $ 40 * I 0 0 0 0 Subcontracting @ $60 per case $ 60 * G 0 0 0 0 Stock Out Cost @ $150 per case $ 150 * J 0 0 0 0 Hiring @ $40 per case $ 40 * H 20,000 0 20,000 0 Layoff @ 80 per case $ 80 * I 0 28,000 0 28,000 Total Cost               258,000.00 74,000 61,000 68,000 55,000

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