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 at the start of 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 at the start of quarter 4 is
A) 0 
B) 15 
C) 75 
D) 125

Quizplus · Accepted Answer

In a chase demand strategy, the company hires or fires workers to match the demand for its products. The goal is to have the exact number of workers needed to produce the required amount of products in each quarter.

To determine the number of workers needed in quarter 4 using a chase demand strategy, we need to calculate the total production required and divide by the production per employee. The demand for quarter 4 is not given, so we will assume that it is the same as the demand for the previous three quarters, which is:

3 x 12,000 = 36,000 units

To produce 36,000 units, the company will need:

36,000 / 500 = 72 workers

At the beginning of quarter 3, the company already has 125 workers. To reduce the workforce to 72, it will need to fire:

125 - 72 = 53 workers

The cost of firing 53 workers is:

53 x $1,500 = $79,500

Therefore, it is not cost-effective to use the chase demand strategy to adjust the workforce for quarter 4. The best choice would be to maintain the workforce at 125 workers and carry inventory to meet demand fluctuations.

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