Aggregate Planning Answers

Manager T. C. Downs of Plum Engines, a producer of lawn mowers and leaf blowers, must develop an
aggregate plan given the forecast for engine demand shown in the table. The department has a normal
capacity of 130 engines per month. Normal output has a cost of $60 per engine. The beginning inventory
is zero engines. Overtime has a cost of $90 per engine.

a.Develop a chase plan that matches the forecast and compute the total cost of your plan.

b. Compare the costs to a level plan that uses inventory to absorb fluctuations. Inventory carrying cost is
$2 per engine per month. Backlog cost is $90 per engine per month.

a.
Period 1 2 3 4 5 6 7 8 Total
Forecast 120 135 140 120 125 125 140 135 1,040
Output
Regular 120 130 130 120 125 125 130 130 1,010
Overtime 5 10 10 5 30
Subcontract
Output – Forecast 0 (5) (10) 0 0 0 (10) (5)
Inventory
Beginning
Ending
Average
Backlog
Costs:
Output
Regular @ 60 $7,200 7,800 7,800 7,200 7,500 7,500 7,800 7,800 $60,600
Overtime @ 90 450 900 900 450 2,700
Subcontract
Inventory @ 5
Backorder
Total 7,200 8,250 8,700 7,200 7,500 7,500 8,700 8,250 $63,300

b.
 Period 1 2 3 4 5 6 7 8 Total
Forecast 120 135 140 120 125 125 140 135 1,040
Output
Regular 130 130 130 130 130 130 130 130 1,040
Overtime
Subcontract
Output – Forecast 10 (5) (10) 10 5 5 (10) (5)
Inventory
Beginning 0 10 5 0 5 10 15 5
Ending 10 5 0 5 10 15 5 0
Average 5 7.5 2.5 2.5 7.5 12.5 10 2.5
Backlog 5
Costs:
Output
Regular @ 60 $7,800 7,800 7,800 7,800 7,800 7,800 7,800 7,800 $62,400
Overtime
Subcontract @ 50
Inventory @ $2 10 15 5 5 15 25 20 5 100
Backorder @ $90 450 450
Total $7,810 7,815 8,255 7,805 7,815 7,825 7,820 7,805 $62,950

Manager Chris Channing of Fabric Mills, Inc., has developed the forecast shown in the table for bolts of
cloth. The figures are in hundreds of bolts. The department has a normal capacity of 275(00) bolts per
month, except for the seventh month, when capacity will be 250(00) bolts. Normal output has a cost of
$40 per hundred bolts. Workers can be assigned to other jobs if production is less than normal. The
beginning inventory is zero bolts.

a. Develop a chase plan that matches the forecast and compute the total cost of your plan. Overtime is
$60 per hundred bolts.

b. Would the total cost be less with regular production with no overtime, but using a subcontractor to
handle the excess above normal capacity at a cost of $50 per hundred bolts? Backlogs are not allowed.
The inventory carrying cost is $2 per hundred bolts.
. a.
Period 1 2 3 4 5 6 7 Total
Forecast 250 300 250 300 280 275 270
Output
Regular 250 275 250 275 275 275 250 1,850
Overtime 25 25 5 20 75
Subcontract
Output – Forecast
Inventory
Beginning
Ending
Average
Backlog
Costs:
Output
Regular @ 40 $10,000 11,000 10,000 11,000 11,000 11,000 10,000 $74,000
Overtime @ 60 1,500 1,500 300 1,200 4,500
Subcontract
Inventory
Backorder
Total $10,000 12,500 10,000 12,500 11,300 11,000 11,200 $78,500

b.
Period 1 2 3 4 5 6 7 Total
Forecast 250 300 250 300 280 275 270 1,925
Output
Regular 275 275 275 275 275 275 250 1,900
Overtime
Subcontract 5 20 25
Output – Forecast 25 –25 25 –25 0 0 0
Inventory
Beginning 0 25 0 25 0 0 0
Ending 25 0 25 0 0 0 0
Average 12.5 12.5 12.5 12.5 0 0 0 50
Backlog 0 0 0 0 0 0 0 0
Costs:
Regular 11,000 11,000 11,000 11,000 11,000 11,000 10,000 76,000
Overtime 0
Subcontract 250 1,000 1,250
Inventory 25 25 25 25 100
Backorder 0
Total 11,025 11,025 11,025 11,025 11,250 11,000 11,000 77,350
The forecast for each period is 70 units. The starting inventory is zero. The MPS rule is to schedule
production if the projected inventory on hand is negative. The production lot size is 100 units. The
following table shows committed orders.