Use pure chase strategy with no-inventory policy

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Reference no: EM131749805

The Biloxi Baby Buggy Company is preparing to develop a production plan for the next four quarters. They have a history of poor planning and they want to improve by using a structured approach. They currently have eight employees in their premium baby buggy (leather sides, stereo sound, and air conditioning) area, each of which is skilled and can perform virtually any of the tasks required to make the premium buggies. In order to plan better, they have gathered some data. They have found that it costs $800 to hire a new employee, but it costs $1,200 to place an employee on layoff. Each employee can produce an average of 50 premium baby buggies each quarter. If they use overtime to produce, the overtime charges add an additional $200 to the cost of a buggy. Any buggies left in inventory cost them about $10 per buggy per quarter, based on the number in inventory at the end of the quarter. There are currently none in stock. The forecasted demand is for 700 in quarter 1, 300 in quarter 2, 900 in quarter 3, and 500 in quarter 4. a. Suppose they were to use a pure “chase” strategy with a no-inventory policy. What would the additional cost (over normal labor and material costs) be for the full year? b. Suppose they were to use a level strategy where they had enough people at the start of the year to cover average quarterly demand, and the used overtime and inventory to accommodate the variations. What would the additional cost of such a plan be? c. What additional considerations should be taken into account before making the final choice between the two plans? Which would you be likely to select and why?

Reference no: EM131749805

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