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

In a chase demand strategy, the company adjusts its workforce to match the demand for its products. Therefore, if the demand for products increases, the company hires more workers, and if the demand decreases, the company fires workers. 
Based on the given information, the production per quarter can be calculated as: 
35 (workers) x 1,250 (units/worker) = 43,750 units/quarter 
Assuming that the demand for quarter 2 is higher than quarter 1, the company needs to increase its production. Let's say the company needs to produce 50,000 units in quarter 2. 
To produce 50,000 units, the company needs: 
50,000 (units) / 1,250 (units/worker) = 40 workers 
Since the company already has 35 workers, it needs to hire 5 more workers. 
The cost of hiring these 5 workers is: 
5 (workers) x $500 (hiring cost/worker) = $2,500 
Therefore, the best choice is B: 20 workers are hired at the start of quarter 2.

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