The following information relates to a company's aggregate production planning activities: Beginning Workforce = 50 workers
Production per Employee = 250 units per quarter
Hiring Cost = $1000 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $15 per unit per quarter
If a level production strategy is used then the required output per quarter is
A)60,000 units.
B)42,500 units.
C)35,000 units.
D)25,000 units.

Question

The following information relates to a company's aggregate production planning activities:  Beginning Workforce = 50 workers
Production per Employee = 250 units per quarter
Hiring Cost = $1000 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $15 per unit per quarter
If a level production strategy is used then the required output per quarter is
A)60,000 units. 
B)42,500 units. 
C)35,000 units. 
D)25,000 units.

Quizplus · Accepted Answer

Using a level production strategy means that the company will produce the same amount of output each quarter.

To calculate the required output per quarter with this strategy, we need to first calculate the total number of workers needed to produce that amount of output:

50 workers x 250 units per worker = 12,500 units

So the company needs to produce 12,500 units per quarter.

Next, we need to calculate the inventory carrying cost for that level of production:

12,500 units x $15 per unit per quarter = $187,500

Finally, we need to compare the cost of hiring and firing workers to adjust the workforce as needed. With a level production strategy, there should be no need to hire or fire workers.

Therefore, the best choice is B: 42,500 units.

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