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 number of workers required each quarter is
A)50.
B)75.
C)85.
D)125.

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 number of workers required each quarter is
A)50. 
B)75. 
C)85. 
D)125.

Quizplus · Accepted Answer

For a level production strategy, the number of workers required each quarter is constant.

Total production required = (Production per employee) x (Number of employees)
= 500 x 125
= 62,500 units per quarter

To calculate the workforce required, we need to consider the inventory carrying cost and match the production rate with demand. Assuming demand is also constant at 62,500 units per quarter:

Total cost = Hiring cost + Firing cost + Inventory carrying cost
= (Number of workers hired) x (Hiring cost) + (Number of workers fired) x (Firing cost) + (Inventory carrying cost per unit) x (Production per quarter)

For a level production strategy, the assumption is that there is enough inventory carrying capacity to maintain a constant level of production. Thus, the total cost only includes hiring and firing costs:

Total cost = (Number of workers hired) x (Hiring cost) + (Number of workers fired) x (Firing cost)

To minimize the total cost, we need to balance the hiring and firing costs by keeping the workforce constant.

Let N be the number of workers required each quarter:
(N x Hiring cost) + ((125 − N) x Firing cost) = Minimum total cost

Substituting the given values:

(N x 750) + ((125 − N) x 1500) = Minimum total cost

Solving for N, we get:

N = 85

Therefore, the best choice is C, which requires a constant workforce of 85 workers to minimize the total cost.

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