Costs of level and chase demand production plans. Concept Introduction: Chase strategy is a strategy used by company to meet uncertain demands of customers. Company produces so much goods that there is enough inventory for end users. This strategy is used usually by companies to optimally reduce cost of inventory.

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Answer 1

Question

Chapter 13, Problem 5PA

Summary Introduction

Interpretation:

Costs of level and chase demand production plans.

Concept Introduction:

Chase strategy is a strategy used by company to meet uncertain demands of customers. Company produces so much goods that there is enough inventory for end users. This strategy is used usually by companies to optimally reduce cost of inventory.

Expert Solution & Answer

Answer to Problem 5PA

The total cost using chase strategy is $546,240.

Explanation of Solution

Given information:

Month	J	F	M	A	M	J	J	A	S	O	N	D
Litres (1000s)	200	120	75	40	15	7	5	10	30	70	120	130

Following is the step wise calculation of level strategy (Note − units in 1,000 liters)

Following is the calculation of holding inventory Holding inventory = Normal Production + On-hand inventory − Demand

Holding inventory = 100 + 90 − 200

Holding inventory / Shortage = 10

The holding inventory / shortage is 10 units

Following is the calculation of Normal Production cost Normal Production cost = Normal production × 400

Normal Production cost = 90 × 400

Normal Production cost = $36,000

Following is the holding cost Holding cost = Holding inventory × 30

Holding cost = 15 × 30

Holding cost = $450

Following is the total cost Total cost = Normal production cost + Holding inventory cost

Total cost = 36000 + 450

Total cost = $36,450

Following is the calculation of level strategy

	J	F	M	A	M	J	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

Total cost 517,230The total cost using level strategy is $517,230 Following is the step wise calculation of chase strategy

(Note − units in 1,000 liters)

Following is the Overtime cost

Overtime cost = Normal production cost + Normal production cost × 20%

Overtime cost = 400 + 400 × 20%

Overtime cost = 400 + 80

Overtime cost = $480

Following is the Undertime cost

Undertime cost = Normal production cost + Normal production cost × 20%

Undertime cost = 400 + 400 × 12%

Undertime cost = 400 + 48

Undertime cost = $448

Following is the calculation of chase strategy

Chase Strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Chase strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Total cost = 5,46,240

The total cost using chase strategy is $546,240.

It is recommended for the company to use level strategy as its cost are less compared to chase strategy.

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Students have asked these similar questions

The results of your four plans will provide an indicative EOQ value. State this value and discuss in a precise manner, why it is not the exact, true value. Additional calculations in the form of plans E, F etc. may also assist your explanation of the EOQ and can be included

i). Complete the table assuming a Level production plan. ii) Comment on your results and explain whether at this stage, you consider a Level plan is a suitable approach for this particular business. Your comment should include reference to a calculated ‘fill rate’.

In the following sawtooth inventory profile diagram, two inventory plans with different order quantities (Q) and different frequencies of delivery are shown; order quantity for Plan A = 200 units and Plan B = 50 units. i). Total demand (D) is 350 units, the holding cost per unit (Ch) is equal to (£0.8) and the ordering cost per order (Co) is (£12.5). Calculate the total costs for each plan and state which one is more preferable along with the reason why. ii). There is a stark difference in the composition of the total costs of Plans A and B. Explain this difference and why it occurs. Use the breakdown of costs for each plan to help illustrate your answer.

Answer 2

Question

Chapter 13, Problem 5PA

Summary Introduction

Interpretation:

Costs of level and chase demand production plans.

Concept Introduction:

Chase strategy is a strategy used by company to meet uncertain demands of customers. Company produces so much goods that there is enough inventory for end users. This strategy is used usually by companies to optimally reduce cost of inventory.

Expert Solution & Answer

Answer to Problem 5PA

The total cost using chase strategy is $546,240.

Explanation of Solution

Given information:

Month	J	F	M	A	M	J	J	A	S	O	N	D
Litres (1000s)	200	120	75	40	15	7	5	10	30	70	120	130

Following is the step wise calculation of level strategy (Note − units in 1,000 liters)

Following is the calculation of holding inventory Holding inventory = Normal Production + On-hand inventory − Demand

Holding inventory = 100 + 90 − 200

Holding inventory / Shortage = 10

The holding inventory / shortage is 10 units

Following is the calculation of Normal Production cost Normal Production cost = Normal production × 400

Normal Production cost = 90 × 400

Normal Production cost = $36,000

Following is the holding cost Holding cost = Holding inventory × 30

Holding cost = 15 × 30

Holding cost = $450

Following is the total cost Total cost = Normal production cost + Holding inventory cost

Total cost = 36000 + 450

Total cost = $36,450

Following is the calculation of level strategy

	J	F	M	A	M	J	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

Total cost 517,230The total cost using level strategy is $517,230 Following is the step wise calculation of chase strategy

(Note − units in 1,000 liters)

Following is the Overtime cost

Overtime cost = Normal production cost + Normal production cost × 20%

Overtime cost = 400 + 400 × 20%

Overtime cost = 400 + 80

Overtime cost = $480

Following is the Undertime cost

Undertime cost = Normal production cost + Normal production cost × 20%

Undertime cost = 400 + 400 × 12%

Undertime cost = 400 + 48

Undertime cost = $448

Following is the calculation of chase strategy

Chase Strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Chase strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Total cost = 5,46,240

The total cost using chase strategy is $546,240.

It is recommended for the company to use level strategy as its cost are less compared to chase strategy.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 13, Problem 5PA

Summary Introduction

Interpretation:

Costs of level and chase demand production plans.

Concept Introduction:

Chase strategy is a strategy used by company to meet uncertain demands of customers. Company produces so much goods that there is enough inventory for end users. This strategy is used usually by companies to optimally reduce cost of inventory.

Expert Solution & Answer

Answer to Problem 5PA

The total cost using chase strategy is $546,240.

Explanation of Solution

Given information:

Month	J	F	M	A	M	J	J	A	S	O	N	D
Litres (1000s)	200	120	75	40	15	7	5	10	30	70	120	130

Following is the step wise calculation of level strategy (Note − units in 1,000 liters)

Following is the calculation of holding inventory Holding inventory = Normal Production + On-hand inventory − Demand

Holding inventory = 100 + 90 − 200

Holding inventory / Shortage = 10

The holding inventory / shortage is 10 units

Following is the calculation of Normal Production cost Normal Production cost = Normal production × 400

Normal Production cost = 90 × 400

Normal Production cost = $36,000

Following is the holding cost Holding cost = Holding inventory × 30

Holding cost = 15 × 30

Holding cost = $450

Following is the total cost Total cost = Normal production cost + Holding inventory cost

Total cost = 36000 + 450

Total cost = $36,450

Following is the calculation of level strategy

	J	F	M	A	M	J	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

Total cost 517,230The total cost using level strategy is $517,230 Following is the step wise calculation of chase strategy

(Note − units in 1,000 liters)

Following is the Overtime cost

Overtime cost = Normal production cost + Normal production cost × 20%

Overtime cost = 400 + 400 × 20%

Overtime cost = 400 + 80

Overtime cost = $480

Following is the Undertime cost

Undertime cost = Normal production cost + Normal production cost × 20%

Undertime cost = 400 + 400 × 12%

Undertime cost = 400 + 48

Undertime cost = $448

Following is the calculation of chase strategy

Chase Strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Chase strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Total cost = 5,46,240

The total cost using chase strategy is $546,240.

It is recommended for the company to use level strategy as its cost are less compared to chase strategy.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 13, Problem 5PA

Summary Introduction

Interpretation:

Costs of level and chase demand production plans.

Concept Introduction:

Chase strategy is a strategy used by company to meet uncertain demands of customers. Company produces so much goods that there is enough inventory for end users. This strategy is used usually by companies to optimally reduce cost of inventory.

Expert Solution & Answer

Answer to Problem 5PA

The total cost using chase strategy is $546,240.

Explanation of Solution

Given information:

Month	J	F	M	A	M	J	J	A	S	O	N	D
Litres (1000s)	200	120	75	40	15	7	5	10	30	70	120	130

Following is the step wise calculation of level strategy (Note − units in 1,000 liters)

Following is the calculation of holding inventory Holding inventory = Normal Production + On-hand inventory − Demand

Holding inventory = 100 + 90 − 200

Holding inventory / Shortage = 10

The holding inventory / shortage is 10 units

Following is the calculation of Normal Production cost Normal Production cost = Normal production × 400

Normal Production cost = 90 × 400

Normal Production cost = $36,000

Following is the holding cost Holding cost = Holding inventory × 30

Holding cost = 15 × 30

Holding cost = $450

Following is the total cost Total cost = Normal production cost + Holding inventory cost

Total cost = 36000 + 450

Total cost = $36,450

Following is the calculation of level strategy

	J	F	M	A	M	J	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

Total cost 517,230The total cost using level strategy is $517,230 Following is the step wise calculation of chase strategy

(Note − units in 1,000 liters)

Following is the Overtime cost

Overtime cost = Normal production cost + Normal production cost × 20%

Overtime cost = 400 + 400 × 20%

Overtime cost = 400 + 80

Overtime cost = $480

Following is the Undertime cost

Undertime cost = Normal production cost + Normal production cost × 20%

Undertime cost = 400 + 400 × 12%

Undertime cost = 400 + 48

Undertime cost = $448

Following is the calculation of chase strategy

Chase Strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Chase strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Total cost = 5,46,240

The total cost using chase strategy is $546,240.

It is recommended for the company to use level strategy as its cost are less compared to chase strategy.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 13, Problem 5PA

Summary Introduction

Interpretation:

Costs of level and chase demand production plans.

Concept Introduction:

Chase strategy is a strategy used by company to meet uncertain demands of customers. Company produces so much goods that there is enough inventory for end users. This strategy is used usually by companies to optimally reduce cost of inventory.

Expert Solution & Answer

Answer to Problem 5PA

The total cost using chase strategy is $546,240.

Explanation of Solution

Given information:

Month	J	F	M	A	M	J	J	A	S	O	N	D
Litres (1000s)	200	120	75	40	15	7	5	10	30	70	120	130

Following is the step wise calculation of level strategy (Note − units in 1,000 liters)

Following is the calculation of holding inventory Holding inventory = Normal Production + On-hand inventory − Demand

Holding inventory = 100 + 90 − 200

Holding inventory / Shortage = 10

The holding inventory / shortage is 10 units

Following is the calculation of Normal Production cost Normal Production cost = Normal production × 400

Normal Production cost = 90 × 400

Normal Production cost = $36,000

Following is the holding cost Holding cost = Holding inventory × 30

Holding cost = 15 × 30

Holding cost = $450

Following is the total cost Total cost = Normal production cost + Holding inventory cost

Total cost = 36000 + 450

Total cost = $36,450

Following is the calculation of level strategy

	J	F	M	A	M	J	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

Total cost 517,230The total cost using level strategy is $517,230 Following is the step wise calculation of chase strategy

(Note − units in 1,000 liters)

Following is the Overtime cost

Overtime cost = Normal production cost + Normal production cost × 20%

Overtime cost = 400 + 400 × 20%

Overtime cost = 400 + 80

Overtime cost = $480

Following is the Undertime cost

Undertime cost = Normal production cost + Normal production cost × 20%

Undertime cost = 400 + 400 × 12%

Undertime cost = 400 + 48

Undertime cost = $448

Following is the calculation of chase strategy

Chase Strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Chase strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Total cost = 5,46,240

The total cost using chase strategy is $546,240.

It is recommended for the company to use level strategy as its cost are less compared to chase strategy.

Answer 6

Chapter 13, Problem 5PA

Summary Introduction

Interpretation:

Costs of level and chase demand production plans.

Concept Introduction:

Chase strategy is a strategy used by company to meet uncertain demands of customers. Company produces so much goods that there is enough inventory for end users. This strategy is used usually by companies to optimally reduce cost of inventory.

Expert Solution & Answer

Answer to Problem 5PA

The total cost using chase strategy is $546,240.

Explanation of Solution

Given information:

Month	J	F	M	A	M	J	J	A	S	O	N	D
Litres (1000s)	200	120	75	40	15	7	5	10	30	70	120	130

Following is the step wise calculation of level strategy (Note − units in 1,000 liters)

Following is the calculation of holding inventory Holding inventory = Normal Production + On-hand inventory − Demand

Holding inventory = 100 + 90 − 200

Holding inventory / Shortage = 10

The holding inventory / shortage is 10 units

Following is the calculation of Normal Production cost Normal Production cost = Normal production × 400

Normal Production cost = 90 × 400

Normal Production cost = $36,000

Following is the holding cost Holding cost = Holding inventory × 30

Holding cost = 15 × 30

Holding cost = $450

Following is the total cost Total cost = Normal production cost + Holding inventory cost

Total cost = 36000 + 450

Total cost = $36,450

Following is the calculation of level strategy

	J	F	M	A	M	J	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

Total cost 517,230The total cost using level strategy is $517,230 Following is the step wise calculation of chase strategy

(Note − units in 1,000 liters)

Following is the Overtime cost

Overtime cost = Normal production cost + Normal production cost × 20%

Overtime cost = 400 + 400 × 20%

Overtime cost = 400 + 80

Overtime cost = $480

Following is the Undertime cost

Undertime cost = Normal production cost + Normal production cost × 20%

Undertime cost = 400 + 400 × 12%

Undertime cost = 400 + 48

Undertime cost = $448

Following is the calculation of chase strategy

Chase Strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Chase strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Total cost = 5,46,240

The total cost using chase strategy is $546,240.

It is recommended for the company to use level strategy as its cost are less compared to chase strategy.

Answer 7

Chapter 13, Problem 5PA

Summary Introduction

Interpretation:

Costs of level and chase demand production plans.

Concept Introduction:

Chase strategy is a strategy used by company to meet uncertain demands of customers. Company produces so much goods that there is enough inventory for end users. This strategy is used usually by companies to optimally reduce cost of inventory.

Answer 8

Expert Solution & Answer

Answer to Problem 5PA

The total cost using chase strategy is $546,240.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Given information:

Month	J	F	M	A	M	J	J	A	S	O	N	D
Litres (1000s)	200	120	75	40	15	7	5	10	30	70	120	130

Following is the step wise calculation of level strategy (Note − units in 1,000 liters)

Following is the calculation of holding inventory Holding inventory = Normal Production + On-hand inventory − Demand

Holding inventory = 100 + 90 − 200

Holding inventory / Shortage = 10

The holding inventory / shortage is 10 units

Following is the calculation of Normal Production cost Normal Production cost = Normal production × 400

Normal Production cost = 90 × 400

Normal Production cost = $36,000

Following is the holding cost Holding cost = Holding inventory × 30

Holding cost = 15 × 30

Holding cost = $450

Following is the total cost Total cost = Normal production cost + Holding inventory cost

Total cost = 36000 + 450

Total cost = $36,450

Following is the calculation of level strategy

	J	F	M	A	M	J	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	130
On-handDelivery	100	0	0	11	65	140	223	308	388	448	468	438
Normal production	90	90	90	90	90	90	90	90	90	90	90	90
Holding inventory			15	65	140	223	308	188	448	408	438	348
Units shortage	10	30

Level strategy cost
Normalproduction	36,000	36,000	34,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000	36,000
Holding cost	0	0	450	1950	4,200	6090	9240	11640	13,440	14040	13140	10440
Total cost	36,000	36,000	34,450	37,950	40,200	42,090	41,240	47,640	49,440	50,040	49140	46,440

Total cost 517,230The total cost using level strategy is $517,230 Following is the step wise calculation of chase strategy

(Note − units in 1,000 liters)

Following is the Overtime cost

Overtime cost = Normal production cost + Normal production cost × 20%

Overtime cost = 400 + 400 × 20%

Overtime cost = 400 + 80

Overtime cost = $480

Following is the Undertime cost

Undertime cost = Normal production cost + Normal production cost × 20%

Undertime cost = 400 + 400 × 12%

Undertime cost = 400 + 48

Undertime cost = $448

Following is the calculation of chase strategy

Chase Strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Chase strategy

	I	F	M	A	M	I	J	A	S	O	N	D
Demand	200	120	75	40	15	7	5	10	30	70	120	180
On-handDelivery	100	0	0	0	0	0	0	0	0	0	0	-
Normal production	90	90	75	40	915	7	5	10	30	70	90	90
Holding inventory			0	0	0	0	0	0	0	0	-	-
Units shortage	10	30									30	90

Chase strategy cost
Normalproduction	36,000	36,000	30,000	16,000	6,000	2,800	2,000	4,000	12,000	28,000	36,000	36,000
Holding cost	4,800	14,400	7,200	24,000	36,000	39,840	40,800	38,400	28,800	9,600	14,400	41,200
Total cost	40,800	50,400	37,200	40,000	42,000	42,680	42,800	42,400	40,800	37,600	50,400	79,200

Total cost = 5,46,240

The total cost using chase strategy is $546,240.

It is recommended for the company to use level strategy as its cost are less compared to chase strategy.

Answer 12

Ch. 13 - Prob. 1DQ Ch. 13 - Prob. 2DQ Ch. 13 - Prob. 4DQ Ch. 13 - Prob. 5DQ Ch. 13 - Prob. 2PA Ch. 13 - Prob. 3PA Ch. 13 - Prob. 4PA Ch. 13 - Prob. 5PA Ch. 13 - Prob. 6PA Ch. 13 - Prob. 7PA

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