Wiedmer Corporation is preparing an aggregate production plan for widgets for the next four months.The company's expected monthly demand is given in the following chart.The company will have 50 widgets in inventory at the beginning of the first month and wishes to maintain at least that number at the end of each month.Following is other critical data: Production cost per unit = $50
Inventory carrying cost per month per unit = $10 (based on ending month inventory) Hiring cost per worker = $300
Firing cost per worker = $200 Beginning number of workers = 16
Each worker can produce = 50 units per month.LEVEL PLAN
What is the regular monthly actual production for a level plan?
A)800
B)1,000
C)1,250
D)1,500

Question

Wiedmer Corporation is preparing an aggregate production plan for widgets for the next four months.The company's expected monthly demand is given in the following chart.The company will have 50 widgets in inventory at the beginning of the first month and wishes to maintain at least that number at the end of each month.Following is other critical data: Production cost per unit = $50
Inventory carrying cost per month per unit = $10 (based on ending month inventory) Hiring cost per worker = $300
Firing cost per worker = $200 Beginning number of workers = 16
Each worker can produce = 50 units per month.LEVEL PLAN
 What is the regular monthly actual production for a level plan?
A)800 
B)1,000 
C)1,250 
D)1,500

Quizplus · Accepted Answer

To determine the regular monthly actual production for a level plan, we need to calculate the average monthly demand over the four-month period:
(900 + 1200 + 1400 + 1100) / 4 = 1150

The company wants to maintain at least 50 widgets in inventory at the end of each month, so the desired ending inventory is 50 widgets per month.

Using the formula for the production quantity in a level plan:
Production quantity = (Demand + Ending Inventory - Beginning Inventory) / Number of Production Periods
= (1150 + 50 - 50) / 4
= 300 widgets per month

To produce 300 widgets per month, the company needs 6 workers (300 / 50 = 6).

The total production cost for a level plan is:
(300 widgets per month) x ($50 per widget) = $15,000 per month

The inventory carrying cost for a level plan is:
(50 widgets) x ($10 per month per widget) = $500 per month

The total labor cost for a level plan is:
(6 workers) x ($300 per worker per period) = $1,800 per month

Therefore, the total cost for a level plan is:
$15,000 (production cost) + $500 (inventory carrying cost) + $1,800 (labor cost) = $17,300 per month.

Based on the given information, the best choice is a level plan, because it has the lowest total cost at $17,300 per month.

Wiedmer Corporation Is Preparing an Aggregate Production Plan for Widgets