contestada

Eagle Fabrication has the following aggregate demand requirements and other data for the upcoming four quarters. Quarter Demand Previous quarter's output 1500 units 1 1300 Beginning inventory 200 units 2 1400 Stock-out cost $50 per unit 3 1500 Inventory holding cost $10 per unit at end of quarter 4 1300 Hiring workers $4 per unit Laying off workers $8 per unit Unit cost $30 per unit Overtime $10 extra per unit What is the cost of the following plans: a. Plan A—chase demand by hiring and layoffs. Cost = $ b. Plan B—produce at a constant rate of 1200 and obtain the remainder from overtime. Cost = c. What plan would you choose?

Respuesta :

Plan A - chase demand by hiring and layoffs will be chosen.

Explanation:

Since this is a chase plan, there is no scope of the stockout and the overtime is also not planned.  the following is used to choose the plan.

Qty               Demand  Production  Hire  Fire  Ending inventory

                               1500                          200

1                       1400       1200    0            300  0

2                      1200            1200    0              0           0

3                       1500           1500   300        0   0

4                       1300            1300     0            200   0

Total                           5200  300   500   0

Marginal cost           $30  $4            $8  $10

Cost                     $156,000  $1,200  $4,000  $0

                                                        $161,200

The question is about the plan that needs to be implemented.

Demand for quarter 1 is 1300 and 200 units is in beginning stock so a production of 1100 units will be required.

In the 2nd quarter a production of 1400 units, 1500 units will be produced in the 3rd quarter and 1300 units will need to be produced in the 4th quarter in order to meet the demand.

The cost will be incurred accordingly and then the plan with the lowest cost will be selected in order to increase profitability.

The lowest cost in incurred in Plan A and therefore Plan A will be chosen and implemented.

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