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Deb Bishop Health and Beauty Products has developed a new shampoo, and you need to develop its aggregate schedule. The cost accounting department has supplied you the costs relevant to the aggregate plan, and the marketing department has provided a four-quarter forecast. All are shown as follows
Quarter Forecast
1 1,400
2 1,200
3 1,500
4 1,300
COSTS
Previous quarter's input 1,500 units Beggining Inventory 0 units Stockout cost for backorders $50 per unit
Inventory Holding Cost $10 per unit for every unit held at the end of the quarter
Hiring workers $40 per unit
Layoff workiers $80 per unit
Unit Cost $30 per unit
Subcontracting Not Available
Develop the aggregate plan for the next four quarters.
a) First try hiring and layoffs (to meet the forecast) as necessary
When using the chase strategy, the total layoff cost in the next four quarter is?
What is the total cost of plan a (i.e., chase strategy)?
b) Then try a plan that holds employment steady
What is the quarterly production in plan b (i.e., level strategy)?
What is the total cost of plan b (i.e., the level strategy)?
Note for b):
i) Use the average quarterly forecast as the level output rate per quarter.
ii) Shortage (or stockout) is allowed and will be fulfilled at in the next period.
iii) Capacity adjustment cost from previous quarter to quarter 1 needs to be included
There are 3 steps to solve this one.
All steps
Introduction :
In the competitive world of health and beauty products, innovation remains paramount in captivating consumers' attention and loyalty. Deb Bishop Health and Beauty Products has taken a significant step forward by developing a new, promising shampoo that seeks to revolutionize the hair care industry. As this new product prepares to make its grand entrance into the market, the critical aspect of effective planning comes into play. An aggregate schedule is essential to ensure that the company meets demand requirements efficiently while managing costs and resources judiciously.
Given data :
Quarter 1 Forecast: 1,400 units Quarter 2 Forecast: 1,200 units Quarter 3 Forecast: 1,500 units Quarter 4 Forecast: 1,300 units Previous quarter's input: 1,500 units Beginning Inventory: 0 units
Stockout cost for backorders: $50 per unit
Inventory Holding Cost: $10 per unit for every unit held at the end of the quarter
Hiring workers: $40 per unit Layoff workers: $80 per unit Unit Cost: $30 per unit
Subcontracting: Not Available
To find :
Create an overall plan for the following four quarters.
a) First, attempt recruiting and layoffs (as needed) to fulfil the prediction.
When employing the chase approach, the total cost of layoffs over the following four quarters is?
How much does plan a (the chasing tactic) cost in total?
b) Then attempt a plan that ensures consistent employment.
What is the quarterly output under Plan B (i.e., the level strategy)?
How much does plan B (the level approach) cost in total?
A word about b):
i) As the level output rate per quarter, use the average quarterly prediction.
ii) Shortage (or stockout) is permitted and will be fulfilled in the next period.
iii) The cost of capacity adjustment from the previous quarter to the first quarter must be inclu
Explanation:
This comprehensive report aims to develop an aggregate plan for Deb Bishop's new shampoo over the next four quarters. The forecasted demands, supplied by the marketing department, set the stage for planning production and inventory levels. Moreover, the cost accounting department has provided valuable insights into various cost components, including unit costs, inventory holding costs, hiring, and layoffs.
Solution :
Plan A - Chase Strategy: Adjust the workforce (hire or layoff) to meet the forecasted demand for each quarter.
Quarter 1:
Forecasted Demand: 1,400 units Production Quantity :1,400 units
Ending Inventory: 1,400 units −1,400 units (Forecasted Demand) = 0 units No hiring or layoffs required.
Quarter 2:
Forecasted Demand: 1,200 units Production Quantity: 1,200 units
Ending Inventory: 1,200 units −1,400 units (Forecasted Demand) = −200 units (Excess inventory from Quarter 1)
Layoffs: We have excess inventory, so we'll layoff workers to reduce production to 1,200 units.
Quarter 3:
Forecasted Demand: 1,500 units Production Quantity: 1,500 units
Ending Inventory: 1,500 units −1,200 units (Forecasted Demand) = 300 units
Hiring: need to produce more than the forecasted demand, so we'll hire workers to meet the demand of 1,500 units.
Quarter 4:
Forecasted Demand: 1,300 units Production Quantity: 1,300 units
Ending Inventory: 1,300 units - 1,500 units (Forecasted Demand) = −200 units (Excess inventory from Quarter 3)
Layoffs: excess inventory, layoff workers to reduce production to 1,300 units.
Total Layoff Cost in the Next Four Quarters:
Layoff Cost in Quarter 2: $80 per unit ×200 units = $16,000 Layoff Cost in Quarter 4: $80 per unit ×200 units = $16,000 Total Layoff Cost: $16,000+$16,000=$32,000
Total Cost of Plan A (Chase Strategy):
Production Costs:
Quarter 1: 1,400 units ×$30 per unit = $42,000 Quarter 2: 1,200 units ×$30 per unit = $36,000 Quarter 3: 1,500 units ×$30 per unit = $45,000 Quarter 4: 1,300 units ×$30 per unit = $39,000
Total Production Costs: $42,000+$36,000+$45,000+$39,000=$162,000 Holding Costs:
Quarter 2: 200 units x 200 per unit = $2,000 Quarter 3: 300 units ×$10 per unit = $3,000 Quarter 4: 200 units ×$10 per unit = $2,000 Total Holding Costs: $2,000+$3,000+$2,000=$7,000
Total Cost of Plan A: $162,000 (Production Costs) +$7,000 (Holding Costs) +$32,000 (Layoff Costs) = $201,000
So, the total layoff cost in the next four quarters using the chase strategy (Plan A) is $32,000, and the total cost of Plan A is $201,000.
Explanation:
Plan A - Chase Strategy: This plan involves adjusting the workforce (hiring and layoffs) based on the forecasted demand for each quarter. The total layoff cost in the next four quarters using this strategy is $32,000 . The total cost of Plan A (Chase Strategy) is $201,000, considering production costs, holding costs, and layoff costs.
Plan B - Level Strategy with Shortages Allowed and Capacity Adjustment Costs:
Average Forecasted Demand (Quarter 1 to Quarter 4):
1,400+1,200+1,500+1,3004=5,4004=1,350 units (Average demand per quarter) Quarterly Production (Plan B):
1,350 units (steady production quantity for each quarter) Ending Inventory and Shortage for each quarter:
Quarter 1:
Production Quantity: 1,350 units
Ending Inventory: 1,350 units −1,400 units (Forecasted Demand) = −50 units (Shortage)
Quarter 2:
Production Quantity: 1,350 units
Ending Inventory: 1,350 units −1,200 units (Forecasted Demand) = 150 units (Surplus, no shortage carryover as shortages allowed)
Quarter 3:
Production Quantity: 1,350 units
Ending Inventory: 1,350 units −1,500 units (Forecasted Demand) = −150 units (Shortage, includes carryover from Quarter 1)
Quarter 4:
Production Quantity: 1,350 units
Ending Inventory: 1,350 units −1,300 units (Forecasted Demand) = 50 units (Surplus, no shortage carryover as shortages allowed)
Capacity Adjustment Costs:
Let's assume that the capacity adjustment cost is $200 per worker. If need to adjust the workforce for Quarter 1 to match the level output rate, we calculate the number of workers needed:
Number of Workers Needed for Quarter 1:
Total units to be produced in Quarter 1 = 1,350 units
Units produced per worker = 1,350 units (Average quarterly output rate)
Number of Workers Needed for Quarter 1 = Total units to be produced / Units produced per worker
Number of Workers Needed for Quarter 1 = 1,350 units /1,350 units per worker = 1 worker
Since the beginning inventory is 0 units, we need to hire 1 worker for Quarter 1, and there will be no hiring or layoffs in the subsequent quarters.
Capacity Adjustment Cost:
Cost of hiring 1 worker for Quarter 1 = 1 worker ×$200 per worker = $200 Total Cost of Plan B (Level Strategy with Shortages Allowed and Capacity Adjustment Costs):
Production Costs:
Quarterly Production: 1,350 units ×$30 per unit = $40,500 (same for all quarters)
Holding Costs:
Quarter 2: 150 units ×$10 per unit = $1,500 (carrying inventory from Quarter 2 to meet the demand in Quarter 3)
Quarter 4: 50 units ×$10 per unit = $500 (carrying inventory from Quarter 4 to meet the demand in Quarter 1 of the next year)
Backorder (Stockout) Costs:
Quarter 1: 50 units (Backordered) ×$50 per unit = $2,500 Quarter 3: 150 units (Backordered) ×$50 per unit = $7,500
Total Cost of Plan B: $40,500 (Production Costs) +$1,500 (Holding Costs) +$2,500 (Backorder Costs) +$7,500 (Backorder Costs) +$200 (Capacity Adjustment Cost) = $52,200
So, the quarterly production in Plan B (Level Strategy) is 1,350 units for each quarter, and the total cost of Plan B, considering shortages allowed and capacity adjustment costs, is $52,200.
Explanation:
Plan B - Level Strategy with Shortages Allowed and Capacity Adjustment Costs:
This plan maintains a steady level of employment and produces at the average quarterly forecasted demand rate (1,350 units per quarter). Shortages are allowed and will be fulfilled in the next period. The capacity adjustment cost for hiring one worker in Quarter 1 is $200. The total cost of Plan B (Level Strategy) is
$52,200, taking into account production costs, holding costs, backorder costs, and the capacity adjustment cost.
a) Plan A - Chase Strategy:
Total Layoff Cost in the Next Four Quarters: $32,000 Total Cost of Plan A (Chase Strategy): $201,000
b) Plan B - Level Strategy with Shortages Allowed and Capacity Adjustment Costs:
Quarterly Production in Plan B: 1,350 units for each quarter.
Total Cost of Plan B (Level Strategy): $52,200 Was this solution helpful?
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