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Aggregate Planning: level capacity and chase demand strategy

A small manufacturing plant is considering their aggregate plan for the next fiscal year. They are limited to a maximum number of 40 FTEs each quarter. Their forecasted demand for next year is:

Quarter 1 2 3 4
Demand 12520 15000 11880 14680

They do not consider hiring or firing costs but have the following production parameters.

Labor Standard = 1.6 hours/item
Regular Time Labor Cost = $10/hour
Beginning Annual Inventory Level = 500
Ending Annual Inventory Level = 500
Unit Inventory Carrying Cost = $4/item/quarter
Any overtime labor in a quarter is time and a half.
(Assume 40 hours/week, 52 weeks/year, and 4 quarters/year.)

1. For next fiscal year, find their annual regular time direct labor cost and their overtime direct labor cost based on a level capacity aggregate planning strategy.

2. For next fiscal year, find their annual regular time direct labor cost and their overtime direct labor cost based on a chase demand aggregate planning strategy.

Solution Preview

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A small manufacturing plant is considering their aggregate plan for the next fiscal year.  They are limited to a maximum number of 40 FTEs each quarter.  Their forecasted demand for next year is:

Quarter 1 2 3 4
Demand 12520 15000 11880 14680

Capacity of present labor force 13000 units per Qtr
Inventory carrying cost 4 $ per unit per qtr
Initial Inventory 500 Units
Ending Inventory 500 Units
Unit Cost $16
Overtime rate $24

1. For next fiscal year, find their annual regular time direct labor cost and their overtime direct labor cost based on a level capacity ...

Solution Summary

This post shows how to chose between the level and chase strategy for aggregate planning

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