The following information relates to a company's aggregate production planning activities: Beginning Workforce = 35 workers
Production per Employee = 1,250 units per quarter
Hiring Cost = $500 per worker
Firing Cost = $1,000 per worker
Inventory Carrying Cost = $20 per unit per quarter
If a level production strategy is used then the required quarterly output is
A) 75,000
B) 87,350
C) 93,750
D) 125,000

Question

The following information relates to a company's aggregate production planning activities:  Beginning Workforce = 35 workers
Production per Employee = 1,250 units per quarter
Hiring Cost = $500 per worker
Firing Cost = $1,000 per worker
Inventory Carrying Cost = $20 per unit per quarter
If a level production strategy is used then the required quarterly output is
A) 75,000 
B) 87,350 
C) 93,750 
D) 125,000

Quizplus · Accepted Answer

For a level production strategy, the production should remain at a constant level throughout the year. Thus, the quarterly output would be:
35 x 1,250 = 43,750 units per quarter
Inventory carrying cost per unit per quarter = $20
Therefore, the inventory carrying cost per quarter would be:
$20 x 43,750 = $875,000
To find the total cost of level production strategy, we need to consider the cost of hiring/firing employees as per the demand of production. Since we are assuming level production, there is no need to hire/fire employees. Hence, the total cost of level production strategy would be the inventory carrying cost only, which is $875,000.

Option C would be the best choice as it incurs the least cost in comparison to other options.

The Following Information Relates to a Company's Aggregate Production Planning