Question

Aggregate Planning

A key hospital supplier, IVs Plus (IVP) located in Salina, KS sells IV tubing and stands to hospitals and clinics. Sales have picked up ever since they introduced their newest “Squeaky Clean” IV stand, which eliminates all oils and germs left behind by users. Though IVP sells these stands all year long, they sell the most during the summer months, when end-of-fiscal year purchases are at a peak. The demand over the next 12 months is shown in the table below. Use the demand forecasts and determine the lowest cost production plan.

Month	Demand Forecast	Month	Demand Forecast
January	133,067	July	251,630
February	155,026	August	249,630
March	168,200	September	200,312
April	173,890	October	160,830
May	202,759	November	145,266
June	260,842	December	128,900

Regular production cost (labor and material cost)	$48 per unit
Holding cost	$13 per unit per month based on ending inventory
Backorder cost	$17.00 per unit per month based on ending inventory
Beginning Inventory	430,000 units
Beginning workforce	18 employees
Regular production rate	9,600 units per employee per month
Hiring cost	$14,000 per worker
Firing cost	$16,000 per worker

Produce at a level rate using regular time production only. Backlogs are allowed in any month except December. Ending inventory is allowed in any month. Ending inventory for December should be as low as possible.

1. How many units are produced for the year using regular time production?

A) Less than 1,900,000

B) Between 1,900,000 and 2,100,000

C) Between 2,100,001 and 2,300,000

D) More than 2,300,000

2. After hiring or firing any workers in the first month, how many workers are required throughout the year following the level production strategy?

A) 15

B) 16

C) 17

D) 18

3. What is the hiring or firing cost in the first month following the level production strategy?

A) Between $0 and $10,000

B) Between $10,001 and $20,000

C) Between $20,001 and $30,000

D) Between $30,001 and $40,000

4. What are the total costs incurred following the level production strategy?

A) Less than $123,000,000

B) Between $123,000,001 and $123,100,000

C) Between $123,100,001 and $123,200,000

D) Greater than $123,200,001

Answer 1

A : Regular Production Plan :

1. How many units are produced for the year using regular time production? - 1,843,200

2. After hiring or firing any workers in the first month, how many workers are required throughout the year following the level production strategy? - 16 workers

3. What is the hiring or firing cost in the first month following the level production strategy? - $32,000

4. What are the total costs incurred following the level production strategy? - $123,379,842