Chapter 10, Problem 5P

Management at the Kerby Corporation has determined the following aggregated demand schedule (in units):

An employee can produce an average of 10 units per month. Each worker on the payroll costs $2,000 in regular—time wages per month. Undertime is paid at the same rate as regular time. In accordance with the labor contract in force, Kerby Corporation does not work overtime or use subcontracting. Kerby can hire and train a new employee for $2,000 and lay off one for $500. Inventory costs $32 per unit on hand at the end of each month. At present, 140 employees are on the payroll and anticipation inventory is zero.

1. Prepare a production plan that only uses a level workforce and anticipation inventory as its supply options. Minimize the inventory left over at the end of the year. Layoffs. undertime, vacations, subcontracting, backorders, and stockouts are not options. The plan may call for a one-time adjustment of the workforce before month 1 begins.
2. Prepare a production plan using a chase strategy, relying only on hiring and layoffs.
3. Prepare a mixed—strategy production plan that uses only a level workforce and anticipation inventory through month 7 (an adjustment of the workforce may be made before month 1 begins) then switches to a chase strategy for months 8 through 12.
4. Contrast these three plans on the basis of annual costs.