The ABC Company is making a production plan for the next yea

The ABC Company is making a production plan for the next year, given the sales forecast for the next year as:

Quarter

1

2

3

4

Total

Sales Forecast (units)

8,000

12,000

16,000

12,000

48,000

Currently, the rm has 12 employees, each producing up to 1,000 units per quarter and earning $2,000 per quarter. The rm estimates its inventory carrying cost to be $2 per unit of ending inventory per quarter and its hiring or layoff costs to be $1,600 per employee. The company currently has an inventory of 1,000 units and wishes to have an ending inventory of 1,000 units at the end of the next year. The company does not plan to incur inventory shortages.

a) Using a chase strategy, determine a workforce level in each quarter and the total cost of the next year (labor cost, hiring cost, layoff costs, and inventory carrying cost).

b) Using a level strategy, determine a constant workforce level and the total cost of the next year.

c) Using Excel Solver, determine the optimal plan and the total cost of the next year.

Quarter	1	2	3	4	Total
Sales Forecast (units)	8,000	12,000	16,000	12,000	48,000

Solution

Quarter Sales Labours Production Inventory Carrying cost Wages Total Cost 1 8000 12 12000 5000 10000 24000 34000 2 12000 12 12000 5000 10000 24000 34000 3 16000 12 12000 1000 2000 24000 26000 4 12000 12 12000 1000 2000 24000 26000 Total Cost 120000 Quarter Sales Labours Production Inventory Hiring/Layoff cost Wages Total Cost 1 8000 7 7000 0 8000 14000 22000 2 12000 12 12000 0 8000 24000 32000 3 16000 16 16000 0 6400 32000 38400 4 12000 13 13000 1000 4800 26000 30800 Total Cost 123200