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The president of Hill Enterprises. Terri Hill, projects the firm’s aggregate demand requirements over the next 8 months as follows: Her operations manager is considering a new plan, which begins in January with 200 units of inventory on hand. Stockout cost of lost sales is $100 per unit. Inventory holding cost is $20 per unit per month. Ignore any idle-time costs. The plan is called plan A. Plan A: Vary the workforce level to execute a strategy that produces the quantity demanded in the prior month. The December demand and rate of production are both 1, 600 units per month. The cost of hiring additional workers is $50 per unit. The cost of laying off workers is $75 per unit. Evaluate this plan. (Enter all responses as whole numbers.)
Expert Answer
Solution :
Ending Inventory and Stockout
Case 1 : If Forecast > Production + Beginning Inventory
Then we have stockout situation, with stockout quantity = Forecast – ( Beginning Inventory + Production) and Ending inventory as 0.
Case 2 : If Forecast < Production + Beginning Inventory
Then we have excess production with ending inventory, with Ending Inventory = ( Beginning Inventory + Production) – Forecast and Stockout as 0.
The Planning are as follows.
