Demand for Quiggly Pops follows an up and down pattern over the four quarters of a year, with peaks in the spring and winter months when special promotions are held. Production is handled by a highly skilled local workforce during a regular 40-hour week (i.e., overtime and subcontracting are not used). The company likes to zero out its inventory at the end of a year so that it can start fresh each January. QP currently uses a level production strategy but would like to evaluate other options. Create a production plan and calculate the cost of the plan for each strategy listed below. Which plan would you recommend to QP?
- Level production
- Chase demand
- Produce 70,000 in period 1, and 100,000 in periods 2 through 4.
- Produce 90,000 in periods 1 through 3, and 100,000 in period 4.
Beginning workforce = 40 workers
Production per employee = 1,250 units per quarter
|
Quarter |
Demand Forecast |
|
1 |
70,000 |
|
2 |
100,000 |
|
3 |
50,000 |
|
4 |
150,000 |
Hiring cost = $500 per worker
Firing cost = $500 per worker
Inventory carrying cost = $1 per unit per quarter
Regular production cost = $10 per unit
