Q.6.

The expected demand and production days in next 6 months, and the costs related to production and
carrying inventory at AutoCo are given below. Prepare two aggregate plans- constant workforce
and chase strategy plans, and compute total cost of each aggregate plan. Show all calculations.

Month Expected demand (units) No of

Production days
July 1200 26
August 800 24
September 1000 26
October 1100 22
November 900 25
December 1400 24

Production and inventory carrying costs

Inventory carrying cost Rs 70 per unit per month
Subcontracting cost per unit Rs 400 per unit
Average pay rate Rs 150 per hour
Overtime pay rate Rs 250 per hour (above 8 hours/day)
Labour hours to product one unit 2 hours
Cost of increasing daily production rate Rs 1000 per unit
Cost of decreasing daily production rate Rs 1500 per unit
Plan-1: Constant workforce
Month Expected demand (units) Production days Production per month Inventory change
July 1200 26 1300 100
August 800 24 1200 500
September 1000 26 1300 800
October 1100 22 1100 800
November 900 25 1250 1150
December 1400 24 1200 950
Total 6400 147 7350 4300

Average demand per day 43.54

Assume average production per day 50 Assumed, instead of 43.54
Average workforce required to produce @ 4 per day 12.5 in eight hour shift, 50/4
Inventory carrying cost 3,01,000 Total of inventory change*70 Rs/unit per month
Regular time labour cost 22,05,000 Average workforce required*150 Rs/hour* 8 hours/day*147 days
Other cost (hiring, layoffs) -
Total cost 25,06,106

Plan-2: Chase strategy- Production rate = Expected demand

Month Expected demand (units) Basic Production cost Hiring cost Layoff Cost Total Cost
July 1200 360000 75000 435000
August 800 240000 600000 840000
September 1000 300000 200000 500000
October 1100 330000 100000 430000
November 900 270000 300000 570000
December 1400 420000 500000 920000
Total 6400 1920000 800000 975000 36,95,000

Basic production cost = Expected demand*2*150

Hiring cost = Increase in expected demand from previous period*1000
Layoff cost = Decrease in expected demand from previous period*1500

Expected demand in June is assumed to be 50 per day*25 days= 1250