Demand for Quiggly Pops follows an up and down pattern over the four quarters of a year, with peaks in the spring and winter months when special promotions are held. Production is handled by a highly skilled local workforce during a regular 40-hour week (i.e., overtime and subcontracting are not used). The company likes to zero out its inventory at the end of a year so that it can start fresh each January. QP currently uses a level production strategy but would like to evaluate other options. Create a production plan and calculate the cost of the plan for each strategy listed below. Which plan would you recommend to QP?
a. Level production
b. Chase demand
c. Produce 70,000 in period 1, and 100,000 in periods 2 through 4.
d. Produce 90,000 in periods 1 through 3, and 100,000 in period 4.
Beginning workforce = 40 workers
Production per employee = 1,250 units per quarter
Quarter Demand Forecast
1 ................70,000
2 ..............100,000
3 ................50,000
4 ..............150,000
Hiring cost = $500 per worker
Firing cost = $500 per worker
Inventory carrying cost = $1 per unit per quarter
Regular production cost = $10 per unit