Liz Perry Health and Beauty Products has developed a new shampoo and you need to develop its aggregate schedule. The cost accounting department has supplied you the cost relevant to the aggregate plan and the marketing department has provided a four-quarter forecast. All are shown as follows:
Quarter Forecast
1........... 1,400
2........... 1,200
3........... 1,500
4........... 1,300
Costs_________________________________
Previous quarter’s output............ 1,500 units
Beginning inventory............. 0 units
Stockout cost for backorders.......... $50 per unit
Inventory holding cost............. $10 per unit for every unit held
at the end of the quarter
Hiring workers................ $40 per unit
Layoff workers............... $80 per unit
Unit cost................. $30 per unit
Overtime................. $15 extra per unit
Subcontracting................. Not available
Your job is to develop an aggregate plan for the next four quarters.
(a) First, try a chase plan by hiring and layoffs (to meet the forecast) as necessary.
(b) Then try a plan that holds employment steady.
(c) Which is the more economical plan for Liz Perry Health and Beauty Products?