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Manufacturing Aggregate Planning Manufacturers Inc. (MI) currently has a labor force of 10, which can produce 500 units per period. The cost of labor is now $2400 per period per employee.
The company has a long- standing rule that does not allow overtime. In addition, the product cannot be subcontracted due to the specialized machinery that MI uses to produce it. As a result, MI can increase or decrease production only by hiring or laying off employees.
The cost is $5000 to hire an employee and $5000 to lay off an employee. Inventory-carrying costs are $100 per unit remaining at the end of each period. The inventory level at the beginning of period 1 is 300 units. The forecast demand in each of six periods is given in the table below.
a. Suppose management sets the level of regular workers for the year equal to the average demand and subcontracts out the rest. What is the cost of this strategy?
b. What is the cost of a chase strategy?
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