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    Aggregate Planning: level capacity and chase demand strategy

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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

    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.

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    https://brainmass.com/business/labour-management-and-relations/205150

    Solution Preview

    See the attached file for complete solution. The text here may not be copied exactly as some of the symbols / tables may not print. Thanks

    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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