The following information relates to a company's aggregate production planning activities:

Beginning Workforce = 35 workers
Production per Employee = 1,250 units per quarter
Hiring Cost = $500 per worker
Firing Cost = $1,000 per worker
Inventory Carrying Cost = $20 per unit per quarter
If a chase demand strategy is used then the number of workers hired at the start of quarter 2 is
A)10
B)20
C)35
D)80

Question

The following information relates to a company's aggregate production planning activities:

Beginning Workforce = 35 workers
Production per Employee = 1,250 units per quarter
Hiring Cost = $500 per worker
Firing Cost = $1,000 per worker
Inventory Carrying Cost = $20 per unit per quarter
If a chase demand strategy is used then the number of workers hired at the start of quarter 2 is
A)10 
B)20 
C)35 
D)80

Quizplus · Accepted Answer

Under Chase demand strategy, the company will adjust its workforce to meet the demand forecasted. The production per quarter will be equal to the demand forecast for the quarter.

The demand forecast for Quarter 2 is 25,000 units (given in the graph), and the production rate per employee is 1,250 units per quarter. Therefore, the company needs 20 workers (25,000/1,250) to meet the demand.

Since the beginning workforce is 35, the company needs to reduce its workforce by 15 workers, which will incur a firing cost of $15,000 (15*$1,000).

Thus, the best choice is option B, i.e., 20, which is the number of workers hired at the start of quarter 2.

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