Question: Jones Inc. is preparing an aggregate production plan for next year. The company expects demand to be 1,000 units in quarter 1; 2,000 units in quarter 2; 4,000 units in quarter 3; and 3,000 units in quarter 4. The company will have 100 units in inventory at the beginning of the year and desires to maintain at least that number at the end of each quarter as safety stock. Other information: Regular production labor cost = $100 per unit Overtime production cost per unit = $150 Inventory carrying cost = $25/unit/quarter based on quarter-ending inventory
Hiring cost = $2,000 per worker
Firing/layoff cost = $3,000 per worker
Beginning number of workers = 15
Each worker can produce 100 units per quarter.
a. What is the total cost of a level plan?
b. What is the total cost of a chase plan utilizing hiring and firing?
c. Suppose Jones management is reluctant to constantly change the workforce by hiring and firing. The company decides to hire seven additional workers at the beginning of the year. The company will build inventory in low-demand months and use it in high-demand months. In addition, if necessary, overtime will be used to meet demand requirements if there is not sufficient inventory available. What is the total cost of this plan?