Aggregate Planning

1. A manager is attempting to develop a plan for the next 9 months with the following
expected demand:

Perio Tot
d 1 2 3 4 5 6 7 8 9 al
1 2 2 2 2 1 1 2 1
Forec 9 3 6 8 1 7 6 6 8 19
ast 0 0 0 0 0 0 0 0 0 40

The department has 20 full-time employees, each can produce 10 units per period at a
cost of 6$ per unit. Inventory holding cost is 5$ per unit per period and backlog cost is
10$ per unit per period. The plan will involve hiring two people to start working in
period, one on a temporary basis who would work for 5 periods and will cost 500$.

A. Determine the total cost of the plan.

B. If overtime is used instead of the previous plan with a maximum capacity of
C. 40 units per period and cost of 10$ per unit. Determine the total cost of the plan.

2. A manger has developed the following forecast. The department has a normal capacity
of 275 units per month, except for the seventh month the capacity will be 250 units
normal cost is 40 $ per unit.

Mont Tot
h 1 2 3 4 5 6 7 al
Forec 25 30 25 30 28 27 27 19
ast 0 0 0 0 0 5 0 25

A. Develop a chase plan the matches the forecast and compute the total cost,
overtime cost is 60$ per unit.
B. Develop another plan in which subcontracting is to handle excess above normal
capacity at a cost of 50$ per unit. Inventory holding cost is 5$ per unit per month
and no backlog is allowed.

3. The production department has the following forecast

Tota
Month 1 2 3 4 5 6 7 l
Forecas 5 4 5 6 5 4 5
t 0 4 5 0 0 0 1 350

Use the following information to develop aggregate planning:

 Regular production cost 80$ per unit
 Overtime production cost 120$ per unit
 Subcontracting cost 140$ per unit
 Regular capacity 40 units per month
 Overtime capacity 8 units per month
 Subcontracting capacity 12 units per month
 Holding cost 10$ per unit per month
 Backorder cost 20$ per unit

A. Use regular production. Supplement using inventory, overtime and subcontracting

as needed. No backlogs are allowed.
B. Use level strategy. Use a combination of backlogs, subcontracting and inventory
to handle demand variations.