Aggregate demand for a product family is given in the table below for the four q
ID: 377514 • Letter: A
Question
Aggregate demand for a product family is given in the table below for the four quarters of 2007. Production cost on regular time is $3 per unit. Labor fluctuation costs are accounted for by costs of changes in production level: each unit of increase in production is accounted for at $1 per unit of increase and $2 per unit of decrease. The inventory cost is $1 per unit per quarter. When necessary, up to 100 units can be subcontracted at a cost of $5 per unit. Demand that cannot be met is a lost sale and accounted for at $10 per unit. Quarter Demand Production Production Production Subcontracted Lost Sale Inventory Increase Decrease Units 900 Q4 06 Q1 07 1000? Q2 07 Q3 07 Q4 07 300 800 400 The aggregate planning technique being considered is level production. That is, the production level is the same for each quarter. Compute the total annual cost of meeting demand for 2007 (Determine the number of units to produce in each month (sum of demand minus initial inventory, divided by four). Then for each month, compute the changes in productive level, the number of units to be subcontracted, ending inventory, and the lost sales) Answer:Explanation / Answer
Quarter
Demand
Production
Production Increase
Production Decrease
Subcontracted Units
Inventory
Lost Sale
Q4 06
---
900
---
---
0
---
---
Q1 07
1000
625
0
275
375
0
0
Q2 07
300
625
0
0
0
325
0
Q3 07
800
625
0
0
0
150
0
Q4 07
400
625
0
0
0
375
0
Cost (in $) (for 2007)
---
7,500
[=( 625 + 625 + 625 + 625)*$3]
0
550 (=275*$2)
1,875 (=375*$5)
850 [=(0 + 325 + 150 + 375)*1]
0
Total Annual Cost of meeting demand for 2017 = $ 7,500 + $ 550 + $ 1,875 + $ 850 = $ 10,775.
Answer: $ 10,775
Quarter
Demand
Production
Production Increase
Production Decrease
Subcontracted Units
Inventory
Lost Sale
Q4 06
---
900
---
---
0
---
---
Q1 07
1000
625
0
275
375
0
0
Q2 07
300
625
0
0
0
325
0
Q3 07
800
625
0
0
0
150
0
Q4 07
400
625
0
0
0
375
0
Cost (in $) (for 2007)
---
7,500
[=( 625 + 625 + 625 + 625)*$3]
0
550 (=275*$2)
1,875 (=375*$5)
850 [=(0 + 325 + 150 + 375)*1]
0