Osprey Machine Works has the following demand requirements and other data for the upcoming four quarters
Quarter Demand Previous quarter's output 2500 units
1 2300 Beginning inventory 200 units
2 2400 Stockout (backorder) cost $50 per unit
3 2600 Inventory holding cost $10 per unit at end of quarter
4 2100 Hiring workers $4 per unit
Laying off workers $8 per unit
Unit cost $30 per unit
Overtime $10 extra per unit
What is the total cost of pursuing a level aggregate plan over the coming year?
Requirements total 9400 units, of which 200 are already in stock. A level rate of 2300 units will meet demand while using up beginning inventory. Costs associated with this plan are:
Cost element Detail Extension
Layoffs $8 × 200 units for the reduction from 2500 units to 2300 units $1,600
Holding There will be 200 units ending inventory at end of Q1 and 100 units at end of Q2, creating an inventory holding cost of $10 × 300 units $3,000
Stockout In Q3, 200 units go unfilled until Q4, for a stockout cost of $50 × 200 $10,000
Unit cost $30 × 9,200 $276,000
TOTAL $290,600.00
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