Question

You would like to construct an aggregate production plan for product CT34 for the four quarters of next year. Cost of regular production = 70 $/u Cost of overtime production = 95 $/u Inventory holding cost = 7 $/u/qtr Cost of increasing production = 80 $/u Cost of decreasing production = 110 $/u The regular production for the last quarter of this year = 1900 u Inventory level at the end of the last quarter of this year = 140 u The forecasted demand for the four quarters of next year are: 2600, 2800, 2200, and 1800 units. You want to use the chase production strategy without overtime production. Furthermore, you will keep inventory as low as possible. Stockouts (shortages) are not allowed. Construct a spreadsheet showing the production plan for next year. Calculate all related costs for the plan.

Answer 1

Production Plan to Produce CT34 using Chase strategy

Quarters	I	II	III	IV	Total
Demand (units)	2600	2800	2200	1800	9400
Inventory at Beginning (units)	140	0	0	0	140
Quantities to be manufactured (units)	2460	2800	2200	1800	9260
Inventory at end (units)	0	0	0	0	0
Inventory Holding Cost	=140 units*$7=$980	0	0	0	$980
Manufacturing cost	=1900 units*$70+560 units*$80=$177800	=2460units*$70+340units*$80=$199400	=2200*80=$176000	=1800*80=$144000	$519400