Missouri's soda pop, inc., has a new fruit juice for drink which it has high hopes. Steven Allen, the production planner has assembled the following cost data and demand forecast:
quarter forecast
1 1800
2 1100
3 1600
4 900
costs/other data
previous quarter's output=1300 cases
beginning inventory=0cases
stock out cost= $150 per cases
inventory holding cost =$40 per case at end of quarter
hiring employees=$40per case
terminating employees=$80per case
subcontracting cost= $60 per case
unit cost on regular time= $30 pr case
overtime cost=$15 extra per case
capacity on regular time=1800cases per quarter
Steven's job is to develop an aggregate plan. the three initial options he wants to evaluate are:
1. plan A: a chase strategy that hires and fires personnel as necessary to meet the forecast
2. plan B: a level strategy
3. plan C: a level strategy that produces 1200 cases per quarter and meets the forecasted demand with inventory and subcontracting.
a. which strategy is the lowest cost plan?
b. if you are Steven's boss the VP for operations, which plan do you implement and why?