Currently the firm has 80 workers who produce 800 units per quarter each.The cost per unit is $35.00.The cost of holding 1 unit per quarter is $1.50.The cost of hiring a worker is $100.The cost of firing a worker is $500.When using the pure chase strategy, what is the total cost for the year? The quarterly demand information is provided below.
Q1:20,000 units, Q2:100,000 units, Q3:60,000 units, Q4:153,000 units
A) $11,694,000
B) $11,889,375
C) $8,570,500
D) $35,000,345

Question

Quizplus · Accepted Answer

Using the pure chase strategy, the firm would hire and fire workers each quarter to match the demand. Therefore, the total cost for the year would be:

Q1:
Number of workers needed: 20,000/800 = 25
Total cost of hiring workers: 25*100 = $2,500
Total cost of producing units: 20,000*35 = $700,000
Total cost of holding units: 20,000*1.5 = $30,000
Total cost for the quarter: $732,500

Q2:
Number of workers needed: 100,000/800 = 125
Total cost of firing workers: 80-125 = 45*500 = $22,500
Total cost of producing units: 100,000*35 = $3,500,000
Total cost of holding units: 100,000*1.5 = $150,000
Total cost for the quarter: $3,672,500

Q3:
Number of workers needed: 60,000/800 = 75
Total cost of firing workers: 125-75 = 50*500 = $25,000
Total cost of producing units: 60,000*35 = $2,100,000
Total cost of holding units: 60,000*1.5 = $90,000
Total cost for the quarter: $2,315,000

Q4:
Number of workers needed: 153,000/800 = 192
Total cost of firing workers: 75-192 = 117*500 = $58,500
Total cost of producing units: 153,000*35 = $5,355,000
Total cost of holding units: 153,000*1.5 = $229,500
Total cost for the quarter: $5,643,000

Total cost for the year: $12,363,000

Therefore, the best choice is A, which is the closest to the calculated cost.

Currently the Firm Has 80 Workers Who Produce 800 Units