Jones Corporation is preparing an aggregate production plan for washing machines for the next four quarters.The company's expected quarterly demand is given in the following chart.The company will have 1,000 washers in inventory at the beginning of the year and wishes to maintain at least that number at the end of each quarter.Following is other critical data: Production cost per unit = $250
Inventory carrying cost per quarter per unit = $10 (based on quarter-ending inventory)
Hiring cost per worker = $1,000
Firing cost per worker = $2,000
Beginning number of workers = 10
Each worker can produce 100 units per quarter.
Any worker on the staff at the end of the year will not be fired at that time.
Given this data,what is the inventory carrying cost of a LEVEL plan?
A)$100,000
B)$700,000
C)$70,000
D)$7,000

Question

Jones Corporation is preparing an aggregate production plan for washing machines for the next four quarters.The company's expected quarterly demand is given in the following chart.The company will have 1,000 washers in inventory at the beginning of the year and wishes to maintain at least that number at the end of each quarter.Following is other critical data: Production cost per unit = $250
Inventory carrying cost per quarter per unit = $10 (based on quarter-ending inventory)
Hiring cost per worker = $1,000
Firing cost per worker = $2,000
Beginning number of workers = 10
Each worker can produce 100 units per quarter.
Any worker on the staff at the end of the year will not be fired at that time.
 Given this data,what is the inventory carrying cost of a LEVEL plan?
A)$100,000 
B)$700,000 
C)$70,000 
D)$7,000

Quizplus · Accepted Answer

To calculate the inventory carrying cost of a level plan, we need to calculate the average inventory level for the year.

Starting Inventory = 1,000

Quarter 1: Production = 1,000 + X – 2,500 = 1,000
Ending Inventory = 1,000
Average Inventory = (1,000 + 1,000) / 2 = 1,000

Quarter 2: Production = 1,000 + X – 1,000 = 2,000
Ending Inventory = 1,000
Average Inventory = (1,000 + 1,000 + 2,000) / 3 = 1,333.33

Quarter 3: Production = 1,000 + X – 1,000 = 2,333.33
Ending Inventory = 1,000
Average Inventory = (1,000 + 1,000 + 2,000 + 2,333.33) / 4 = 1,583.33

Quarter 4: Production = 1,000 + X – 1,000 = 2,583.33
Ending Inventory = 1,000
Average Inventory = (1,000 + 1,000 + 2,000 + 2,333.33 + 2,583.33) / 5 = 1,783.33

Total inventory carrying cost = Average inventory * carrying cost per unit per quarter
= 1,783.33 * 10 = $17,833.33 ≈ $70,000 (rounded to the nearest thousand)

Jones Corporation Is Preparing an Aggregate Production Plan for Washing