A key hospital supplier, IVs Plus (IVP) located in Salina, KS sells IV tubing and stands to hospitals and clinics. Sales have picked up ever since they introduced their newest "Squeaky Clean" IV stand, which eliminates all oils and germs left behind by users.
Though IVP sells these stands all year long, they sell the most during the summer months, when end-of-fiscal year purchases are at a peak. The demand over the next 12 months is shown in the table below.
Use the demand forecasts and determine the lowest cost production plan.
|
Month
|
Demand Forecast
|
Month
|
Demand Forecast
|
|
January
|
133,067
|
July
|
251,630
|
|
February
|
155,026
|
August
|
249,630
|
|
March
|
168,200
|
September
|
200,312
|
|
April
|
173,890
|
October
|
160,830
|
|
May
|
202,759
|
November
|
145,266
|
|
June
|
260,842
|
December
|
128,900
|
|
Regular production cost
|
$48 per unit
|
|
Holding cost
|
$13 per unit per month based on ending inventory
|
|
Backorder cost
|
$17.00 per unit per month based on ending inventory
|
|
Beginning Inventory
|
430,000 units
|
|
Beginning workforce
|
18 employees
|
|
Regular production rate
|
9,600 units per employee per month
|
|
Hiring cost
|
$14,000 per worker
|
|
Firing cost
|
$16,000 per worker
|
1. What are the total costs incurred following the level production strategy?
A. Less than $123,000,000
B. Between $123,000,001 and $123,100,000
C. Between $123,100,001 and $123,200,000
D. Greater than $123,200,001
2. How many units are produced for the year using the chase production strategy?
A. Less than 1,600,000
B. Between 1,600,000 and 1,800,000
C. Between 1,800,001 and 2,000,000
D. More than 2,000,000
3. What is the annual total cost of firing employees in this example following the chase production strategy?
A. Between $519,000 and $521,000
B. Between $521,001 and $523,000
C. Between $523,001 and $525,000
D. Greater than $525,001
4. What are the total costs incurred following the chase production strategy?
A. Less than $90,000,000
B. Between $90,000,001 and $92,000,000
C. Between $92,000,001 and $94,000,000
D. Greater than $94,000,001
5. How many workers are required in July following the chase production strategy?
A. 26
B. 27
C. 28
D. 29