Question

The King Co. makes product AKUA10 and SKUB10 and is preparing an aggregate plan for the next two quarters. SKUA10 takes one labor hour per unit to produce while SKUB takes two labor hours per unit to produce. At the beginning of Quarter 1 (Q1) there are 150 units of SKUA10 and 40 units of SKUB10 in inventory. There is no need for any ending inventory at the end of Quarter 2 (Q2). The sales for SKUA10 are forecasted to be 140 units in Q1 and 50 units in Q2, while the sales for SKUB10 are forecasted to be 55 units in Q1 and 45 units in Q2.

i) Identify an appropriated aggregate unit to assist in aggregate planning?

ii) What is the initial inventory in aggregate units?

iii) What is the aggregate sales forecast for each quarter?

iv) If a chase plan is used how much, in terms of aggregate units, will be produced in each quarter? According to this aggregate plan what will be inventory and backorders at the end of Q1 and at the end of Q2?

v) If a level plan is used how much, in terms of aggregate units, will be produced in each quarter? According to this aggregate plan what will be the inventory and backorders at the end of Q1 and at the end of Q2?

vi) Which aggregate plan has higher backorders?

vii)Which aggregate plan has higher ending inventory?

viii) Distribute the aggregate production plans determined in d) and e) to the two individual products for each of Q1 and Q2. Under your proposal what will be the inventory and backorders (in aggregate units) at the end of Q1?

Answer 1

Sales Forecast
	Q1	Q2				Beginning Inventory	Ending Inventory	Labour Hours
A	140	50			A	150	0	1
B	55	45			B	40	0	2
i) Identify an appropriated aggregate unit to assist in aggregate planning?
The appropriate aggregate unit used should be Labour Hours.
This is because units needed is directly correlated with it & this will enable us in getting correct boundary conditions.
ii) What is the initial inventory in aggregate units?
Initial inventory
A	150	(150*1)
B	80	(40*2)
Therefore, initial inventory equals 230 Labour Hours.
iii) What is the aggregate sales forecast for each quarter?
Quarter 1: 140 units of A & 55 units of B which equal 140*1+55*2= 250 Labour Hours
Quarter 2: 50 units of A & 45 units of B which equal 50*1+45*2= 140 Labour Hours
iv) If a chase plan is used how much, in terms of aggregate units, will be produced in each quarter?
According to this aggregate plan what will be inventory and backorders at the end of Q1 and at the end of Q2?
Chase Plan refers to completing the stipulated demand in the same quarter.
Quarter 1;-
A has a demand of 140 units while B has demand of 55 units
The supply needed= Demand - Opening Inventory for both A & B individually.
A=   140-150    =     -10 (Opening inventory of 10 units in Quarter 2)
B =      55-40   = 15
Quarter 1:- Total production will be 15*2 = 30 Labour Hours
Inventory at end of Quarter 1: 10 units of A= 10*1= 10 Labour Hours
No Backorders
Quarter 2:
A has a demand of 55 units while B has demand of 45 units
A = 55-10   =45
B = 45-0     = 45
Quarter 2: Total production will be 45*1+45*2 = 135 Labour Hours
Inventory at end of Quarter 2: 0 units
No Backorders
v) If a level plan is used how much, in terms of aggregate units, will be produced in each quarter?
According to this aggregate plan what will be the inventory and backorders at the end of Q1 and at the end of Q2?
Total demand of A: 190
Total demand of B: 100
Total production hours needed: 190*1+100*2 = 390 Labour Hours
Beginning inventory = 230 Labour Hours
Labour Hours needed/ Quarter: (390-230)/2= 70 Labour Hours
This equals aggregate units to produce each quarter .
Inventory at end of Q1: 230+70-(140*1+55*2)=50 Labour Hours. Backorders at end of Q1 = 0
Inventory at end of Q2: 50+70-(50*1+45*2)= -20 Labour Hours. Backorders at end of Q2 = 20 Labour Hours
vi) Which aggregate plan has higher backorders?
Level Plan has higher backorders
vii)Which aggregate plan has higher ending inventory?
Level Plan has higher ending inventory