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 chase demand strategy is used the number of workers fired in quarter 3 is
A)0.
B)40.
C)50.
D)75.

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 chase demand strategy is used the number of workers fired in quarter 3 is
A)0. 
B)40. 
C)50. 
D)75.

Quizplus · Accepted Answer

With a chase demand strategy, the company matches its workforce to the demand for its products, so the workforce level changes from quarter to quarter.

To determine the number of workers needed in each quarter, we need to calculate the production required and divide it by the production per employee:

Quarter 1: 125 workers x 500 units/worker = 62,500 units 
Quarter 2: 75,000 units 
Quarter 3: 100,000 units 
Quarter 4: 50,000 units

Based on the demand in each quarter, we can calculate the number of workers needed:

Quarter 1: 125 workers 
Quarter 2: 150 workers (75,000/500) 
Quarter 3: 200 workers (100,000/500) 
Quarter 4: 100 workers (50,000/500)

To calculate the cost of firing workers in quarter 3, we need to determine the number of excess workers in that quarter:

Excess Workers = Number of Workers - Required Workers 
Excess Workers in Quarter 3 = 200 - 125 = 75

The cost of firing workers is $1,500 per worker, so the cost of firing 75 workers would be:

Cost of Firing = Excess Workers x Firing Cost 
Cost of Firing = 75 x $1,500 
Cost of Firing = $112,500

Therefore, the answer is B: 40.

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