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 chase demand strategy is used,then the number of workers hired at the start of quarter 2 is
A)0
B)50
C)100
D)200

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 chase demand strategy is used,then the number of workers hired at the start of quarter 2 is
A)0 
B)50 
C)100 
D)200

Quizplus · Accepted Answer

In a chase demand strategy, the company hires or fires workers as demand fluctuates in order to keep labor costs in line with production needs. In this case, we need to determine how many workers to hire at the start of quarter 2 to meet production demands.

The production demand for quarter 2 is not given, so we need to calculate it based on the production levels and demand forecasts for quarters 1 and 3. Assuming that demand is constant, the production demand for each quarter would be:

Quarter 1: 50 workers x 250 units/worker = 12,500 units 
Quarter 2: unknown 
Quarter 3: 50 workers x 250 units/worker = 12,500 units

If we assume that demand is constant at 12,500 units per quarter, we can use a chase demand strategy to determine how many workers to hire or fire. Since the company has 50 workers at the beginning of quarter 1, we need to hire additional workers to meet the production demand for quarter 2.

The additional production demand for quarter 2 is 12,500 - 0 - 12,500 = 0 units (since there is no change in demand). Therefore, we need to hire enough workers to produce an additional 0 units. Since each worker can produce 250 units per quarter, we don't need to hire any additional workers.

Therefore, the answer is choice C: 100.

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