SCHOOL OF GRADUATE STUDIES

GBS 660 PRODUCTION AND OPERATIONS MANAGEMENT

ASSIGNMENT: INDEPENDENT DEMAND INVENTORY MANAGEMENT AND

AGGREGATE PLANNING

Due Date: 1st March, 2021

QUESTION 1:
Home Appliance is a company that produces all kinds of major appliances. Edgar Joseph,
the president of Home Appliance, is concerned about the production policy for the
company’s bestselling refrigerator. The annual demand has been about 8,000 units each
year, and this demand has been constant throughout the year. The production capacity is
200 units per day. Each time production starts, it costs the company $120 to move
materials into place, reset the assembly line, and clean the equipment. The holding cost
of a refrigerator is $50 per year. The current production plan calls for 400 refrigerators to
be produced in each production run. Assume there are 250 working days per year.

(a) What is the daily demand of this product?

(b) If the company were to continue to produce 400 units each time production starts,
how many days would production continue?
(c) Under the current policy, how many production runs per year would be required?
What would the annual setup cost be?
(d) If the current policy continues, how many refrigerators would be in inventory when
production stops? What would the average inventory level be?
(e) If the company produces 400 refrigerators at a time, what would the total annual
stocking cost be?
(f) If Edgar Joseph wants to minimize the total annual inventory cost, how many
refrigerators should be produced in each production run? How much would this
save the company in inventory costs compared to the current policy of producing
400 in each production run?
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QUESTION 2:
A concrete block making company is developing an aggregate capacity plan from the
following sales forecast for its 6” and 8” concrete blocks shown in the table below.

Sales Forecasts (Concrete Blocks)

Product
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

2,000 1,500 1,600 1,800

6” Block

1,200 1,000 800 1,000

8” Block

Ample machine capacity exists to produce the forecast. Each 6” concrete block takes an
average of 20 labour-hours while each 8” concrete block takes an average of 15 labour-
hours.

a) Compute the aggregate number of labour-hours in each quarter.

b) If the plant works the same number of days in each quarter, 13 five-day weeks on a
single shift, how many workers will be required in each quarter?
c) It costs $1,000 to hire a worker and $500 to lay off a worker, and inventory carrying
cost is $100 for each 6” concrete block and $100 for each 8” concrete block (this
means that if one 6” concrete block were held in inventory for a year, it would cost
$100 for finance charge, insurance, warehousing expense, etc.). The plant works
the same number of days in each quarter, 13 five-day weeks. Assuming that the
quarterly demand pattern repeats from year to year, compute the cost of each of the
following two aggregate plans for next year:

i. Chase strategy plan. Beginning inventory in this plan is zero for both types
of concrete blocks.
ii. Level strategy plan. Beginning inventory in this plan is 275 for 6” concrete
blocks and 200 for 8” concrete blocks.

End of Assignment

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