A chemical company is in the process of developing an aggregate capacity plan for the next year. Two alternative plans are being considered: 1) level capacity with inventory or 2) a chase strategy. For each of the plans, evaluate the total costs and determine which plan is most economical. Use the data below to reach your decision.
Demand: Quarter 1 - 40,000 gallons
Quarter 2 - 57,500
Quarter 3 - 55,000
Quarter 4 - 52,500
Current employment level - 228 workers
Time required to make 1 gallon - 2.311 (labor standard hours)
Available work hours per quarter - 520
Regular time pay - $20 hour
Overtime pay - $30
Overtime capacity not to exceed 100 hours per quarter
Holding Costs - $5
Increase (hiring costs) - $250
Decrease (firing costs) - $300
Initial Inventory - 0
Units last period - 51, 250
Sales are lost if inventory is not available (no backorders)