Chapter 11

Problem 4

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 regular output capacity of 130 engines per month. Regular output has a cost of $60 per engine. The beginning inventory is zero engines. Overtime has a cost of $90 per engine.

MONTH

1

2

3

4

5

6

7

8

Total

120

135

140

120

125

125

140

135

1,040

a.

Develop a chase plan that matches the forecast and compute the total cost of your plan. Regular production can be less than regular capacity.

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. There should not be a backlog in the last month.