Production plan to meet projected demand at minimum cost

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Reference no: EM132226276

At the beginning of each operating year, Baltimore, Inc. develops quarterly production plan to meet projected demand at minimum cost. Demand forecast for the next four quarters is shown below: Quarter Demand Forecast 1 20,000 2 26,000 3 34,000 4 24,000 Suppose at the beginning of the planning period (i.e., Quarter 1) there were 40 production workers and 6,000 units in inventory. Each worker produces 500 units per quarter and is paid $13,000 per quarter including fringe. If overtime is used workers are paid 150% of their regular pay. On average it costs $4,000 to lay off a worker and $2,000 to hire a new worker. Inventory carrying costs is $20 per quarter. At the end of the fourth quarter, the manager plans to have 2000 units of inventory on hand. Instructions: The operations manager is wondering if using the chase or level strategy will be a better option to minimize total cost. To assist the manager with this decision, please: (a) Develop a production plan using Chase strategy to meet projected demand, and determine the total cost of this plan. (b) Develop a production plan using Level strategy to meet projected demand, and determine the total cost of this plan. (c) Suppose the manager is also wondering if using a mixed strategy that combines level with overtime for one quarter will result in lower total costs. Determine the number of workers that will be required if a mixed strategy of Level plus 20% overtime is used during the peak demand quarter (i.e., Quarter 3). [Please note: In the interest of time, you are ONLY expected to determine the number of workers the company needs to have during each of the four quarters if it chooses to use level plus 20% overtime strategy. You are NOT required to compute the total cost for (b) above.]

Reference no: EM132226276

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