The following information relates to a company's aggregate production planning activities: Beginning Workforce = 125 workers
Production per Employee = 500 units per quarter
Hiring Cost = $750 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $10 per unit per quarter
If a level production strategy is used,the total cost of the production plan (hiring cost,firing cost,and inventory cost)is
A)$60,000
B)$275,000
C)$335,000
D)$610,000

Question

The following information relates to a company's aggregate production planning activities:  Beginning Workforce = 125 workers
Production per Employee = 500 units per quarter
Hiring Cost = $750 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $10 per unit per quarter
If a level production strategy is used,the total cost of the production plan (hiring cost,firing cost,and inventory cost)is
A)$60,000 
B)$275,000 
C)$335,000 
D)$610,000

Quizplus · Accepted Answer

To use a level production strategy, the company must maintain a constant workforce throughout the planning period. Thus, the number of workers needed to maintain this strategy can be calculated as follows:

Quarterly production = 125 workers x 500 units per worker = 62,500 units
Inventory carrying cost = 62,500 units x $10 per unit per quarter = $625,000

The total cost of the production plan can now be calculated by adding the hiring and firing costs to the inventory carrying cost:

Hiring cost = 0 (since no new workers are hired)
Firing cost = 0 (since no workers are fired)
Inventory carrying cost = $625,000

Total cost = $625,000

Therefore, the best choice is C.

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