Aggregate demand for a product family is given in the table below for the 4 quarters of 2008. Production cost on regular time is $5 per unit.
Labor fluctuation costs are accounted for by costs of changes in production level: each unit of increase in production is accounted for at $2 per unit of
increase and $1 per unit of decrease. When necessary up to 30 units can be subcontracted at a cost of $8 per
unit. The inventory cost is $1 per unit per quarter. Demand that cannot be met is a lost sale and accounted for at $10 per unit.
Quarter
Demand
Production
Production Increase
Production Decrease
Subcontracted Units
Inventory
Lost Sales
Q4 07
60
0
Q1 08
70
?
?
?
?
?
?
Q2 08
60
?
?
?
?
?
?
Q3 08
10
?
?
?
?
?
?
Q4 08
40
?
?
?
?
?
?
The aggregate planning technique being considered is level production. That is the production level is the same for each quarter. Compute thetotal annual cost
of meeting demand for 2008. (Determine the number of units to produce in each month after incorporating initial
inventory. Then for each month compute the production level changes the number of units to be subcontracted the inventory and the lost sales. To facilitate
computation create a table with applicable columns).