Zanda Corporation is preparing an aggregate production plan for its product for the next four months. The company's expected monthly demand is given in the following chart. The company will have 100 units in inventory at the beginning of the month and wishes to maintain at least 100 units at the end of each month. Following is other critical data:
Production cost per unit = $125
Inventory carrying cost per month per unit = $10 (based on ending month inventory)
Hiring cost per worker = $50
Firing cost per worker = $100
Beginning number of workers = 25
Each worker can produce 25 units per month.
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What is the total cost of a CHASE plan (using hiring/firing)?
A. $379,800
B. $379,000
C. $381,100
D. $380,300
D. $380,300
Explanation:
With a chase plan, production will be 3,000 units at $125 per unit = $375,000. Using a chase strategy you will lay off one worker in month 1 and four workers in month 3. 5 layoffs at $100 each = $500
You will hire 8 workers in month 2 and month 4. 16 workers hired at $50 each = $800
Inventory carry cost will be 100 units per month at $10 per month for 4 months = $4,000
$375,000 + $500 + 800 + 4,000 = $380,300.
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