Calculating Total Cost for Aggregate Production Planning

The following information relates to a company’s aggregate production planning activities:

Quarter: Demand Forecast

1: 60

2: 60

3: 40

4: 80

Regular production cost: $11 per unit

Beginning Workforce: 6 workers

Production per Employee: 10 units per quarter

Hiring Cost: $170 per worker

Firing Cost: $70 per worker

Inventory Carrying Cost: $1 per unit per quarter

If a level production strategy is used, what is the total cost for the plan?

Answer: The total cost for the plan, using a level production strategy, is $3220.

Explanation: To calculate the total cost for the plan, we need to consider the regular production cost, hiring cost, firing cost, and inventory carrying cost.

The regular production cost is calculated by multiplying the cost per unit ($11) by the total production. In this case, the total production is the sum of the demand forecasts for each quarter: 60 + 60 + 40 + 80 = 280 units.

The hiring cost is calculated by multiplying the cost per worker ($170) by the number of workers hired. Since the beginning workforce is 6 workers and there are no workers hired, the hiring cost is 0.

The firing cost is calculated by multiplying the cost per worker ($70) by the number of workers fired. Since there are no workers fired, the firing cost is 0.

The inventory carrying cost is calculated by multiplying the cost per unit ($1) by the average inventory level. The average inventory level is half of the total production, which is 280/2 = 140 units.

Now, let's calculate the total cost:

Regular production cost: $11 * 280 = $3080

Hiring cost: $0

Firing cost: $0

Inventory carrying cost: $1 * 140 = $140

Therefore, the total cost for the plan is $3080 + $0 + $0 + $140 = $3220.