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

Beginning Workforce = 50 workers
Production per Employee = 250 units per quarter
Hiring Cost = $1000 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $15 per unit per quarter
If a level production strategy is used then the number of workers required is
A)125
B)170
C)250
D)325

Question

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

Beginning Workforce = 50 workers
Production per Employee = 250 units per quarter
Hiring Cost = $1000 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $15 per unit per quarter
If a level production strategy is used then the number of workers required is
A)125 
B)170 
C)250 
D)325

Quizplus · Accepted Answer

In level production, the company produces the same amount of units each quarter. The total number of units required in a year is 8000 (250 units per employee per quarter x 50 employees x 4 quarters). The inventory carrying cost is $15 per unit per quarter, so the total inventory carrying cost for the year will be $480,000 ($15 x 8000 units).

To determine the number of workers required, we divide the total units required by the production per employee per quarter:

8000 units ÷ 250 units per employee per quarter = 32 employees

Since the company has a beginning workforce of 50 employees, they have excess capacity and do not need to hire any additional workers. Therefore, the total cost for this strategy is the inventory carrying cost of $480,000.

If the company were to choose a chase demand strategy, they would need to hire and fire workers based on demand. This would increase their costs due to the hiring and firing costs.

Therefore, the best choice is to use the level production strategy with a total cost of $480,000.

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