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 chase demand strategy is used then the number of workers hired in quarter 4 is
A)0
B)15
C)75
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 chase demand strategy is used then the number of workers hired in quarter 4 is
A)0 
B)15 
C)75 
D)125

Quizplus · Accepted Answer

In a chase demand strategy, the company adjusts the workforce to meet the demand. Therefore, the number of workers in each quarter will depend on the demand for that quarter.

For quarter 4, we need to determine the production demand to decide on the workforce required.

Based on the graph, the demand for quarter 4 is 7,500 units.

To meet this demand, the company will need:

Number of workers = (Demand for the quarter) / (Production per employee)

= 7,500 / 500

= 15

Therefore, the company needs to hire 15 workers in quarter 4.

The firing cost is not applicable here, as the demand is higher than the production capacity. However, the hiring cost will be:

Hiring cost = (Number of workers hired) * (Cost per worker)

= 15 * $750

= $11,250

The inventory carrying cost is also not applicable in this case, as there is no excess production.

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