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 workforce is adjusted each period to match the demand forecast.

For quarter 1: 
Demand is not given, so assume it is equal to the current workforce multiplied by the production per employee = 35 * 1,250 = 43,750 units.

For quarter 2: 
Demand is 60,000 units. We need to produce 60,000 - 43,750 = 16,250 units more. Since each worker produces 1,250 units per quarter, we need to hire:

16,250 / 1,250 = 13 workers

Therefore, the ending workforce in quarter 2 is 35 + 13 = 48 workers.

The number of workers hired at the start of quarter 2 is 48 - 35 = 13 workers.

The cost of hiring 13 workers is 13 * $500 = $6,500.

Since firing cost is not relevant in this scenario, it is not considered.

The inventory carrying cost is not relevant either, since we are using a chase demand strategy and producing only what is required to meet demand.

Therefore, the best choice is B: 20 workers, which is not included as an option.

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