Deb Bishop Health and Beauty Products has devel- oped a new shampoo, and you need to develop its aggregate sched- ule. The cost accounting department has supplied you the costs 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
a) b)
◆ Plan A: a strategy that hires and fires personnel as necessary to meet the forecast.
◆ Plan B: a level strategy.
◆ Plan C: a level strategy that produces 1,200 cases per quar-
ter and meets the forecast demand with inventory and sub-
contracting.
Which strategy is the lowest-cost plan?
If you are John’s boss, the VP for operations, which plan do you implement and why? PX
PERIOD
REGULAR TIME
OVERTIME
SUBCONTRACT
DEMAND FORECAST
1
30
10
5
40
2
35
12
5
50
3
30
10
5
40
Your job is to develop an aggregate plan for the next four quarters.
a) First, try 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 Deb Bishop Health
and Beauty Products? P