The president of Hill Enterprises, Terri Hill, projects thefirm’s aggregate demand requirements over the next 8 months asfollows:
Dec 1,600 Jan. 1,400 May 2,200 Feb. 1,600 June 2,200 Mar. 1,800July 1,800 Apr. 1,800 Aug. 1,800.
Her operations manager is considering a new plan, which beginsin January with 200 units on hand. Stockout cost of lost sales is$100 per unit. Inventory holding cost is $20 per unit per month.Ignore any idle-time costs. The plan is called plan A. Plan A: Varythe workforce level to execute a “chase” strategy by producing thequantity demanded in the prior month. The December demand and rateof production are both 1,600 units per month. The cost of hiringadditional workers is $5,000 per 100 units. The cost of laying offworkers is $7,500 per 100 units. Evaluate this plan. PX Note: Bothhiring and layoff costs are incurred in the month of the change.For example, going from 1,600 in January to 1,400 in Februaryincurs a cost of layoff for 200 units in February.
If demand is more than production and there is noinventory, then you will have stockout for that month.
Total costs = $43,000
Total costs = $153,000
Total costs = $135,000
Total costs = $28,000
Total costs = $85,000
