Question

Trexoid Inc. makes a popular video game console. Demand varies each month, with highest demand coming in the last quarter of the year. Regular production costs are $250 per unit and inventory carrying cost is $3 per unit per quarter. Overtime production cost is $280 per unit. Assume that the 20 current Trexoid employees can produce a total of 30,000 units per quarter in regular production and can work enough overtime hours to produce the amount required if a chase plan is employed. On the other hand, hiring cost is $6,000 per employee and firing cost is $11,000 per employee. Trexoid currently has zero inventory on hand, and they would like to have zero inventories at the end of the year. Assume hiring and layoff/firing, if necessary, occur at the beginning of the quarter. Forecasted demand is as follows:

Quarter 1

24,000

units

Quarter 2

24,000

units

Quarter 3

54,000

units

Quarter 4

90,000

units

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a. Given the above demand estimate, develop a production plan based on level production. (Leave no cells blank - be certain to enter "0" wherever required.)

Level Production Plan
Quarter	Demand	Regular Production	Ending Inventory	Number of Workers	Hire	Fire
1	24,000
2	24,000
3	54,000
4	90,000
Total	192,000

b. Determine the cost of the level production plan.

c. Given the planning information, develop a production plan based on chase production. (Leave no cells blank - be certain to enter "0" wherever required.)

Chase Production Plan – Overtime with Stable Workforce
Quarter	Demand	Regular Production	Overtime Production	Ending Inventory	Number of Workers
1	24,000
2	24,000
3	54,000
4	90,000
Total	192,000

Chase Production Plan – Changing Workforce Levels
Quarter	Demand	Regular Production	Ending Inventory	Number of Workers	Hire	Fire
1	24,000
2	24,000
3	54,000
4	90,000
Total	192,000

Total cost if overtime production used
Total cost if workforce size adjusted

Answer 1

Solution :

Part A and B :

Total Cost : 48,414,000

Part C :

Chase Plan with Overtime : Total Cost : 50,214,000

Chase Plan with variable workforce size : Total Cost : 48,308,000