Eagle Fabrication Has the Following Aggregate Demand Requirements and Other

question 126

Essay

Eagle Fabrication has the following aggregate demand requirements and other data for the upcoming four quarters.
$\begin{array}{|l|l|l|l|}\hline\text { Quarter}&\text { Demand }& \text { Previous quarter's output } &1500 \text { units }\\\hline1&1300& \text { Beginning inventory } & 200 \text { units } \\\hline2&1400& \text { Stockout cost } & \$ 50 \text { per unit } \\\hline&&&\$ 10 \text { per unit at end of } \\3&1500& \text { Inventory holding cost } &\text { quarter }\\\hline 4&1300&\text { Hiring workers } & \$ 4 \text { per unit } \\\hline &&\text { Laying off workers } & \$ 8 \text { per unit } \\\hline&& \text { Unit cost } & \$ 30 \text { per unit } \\\hline &&\text { Overtime } & \$ 10 \text { extra per unit }\\\hline\end{array}$
Which of the following production plans is better: Plan A-chase demand by hiring and layoffs; or Plan B-produce at a constant rate of 1200 and obtain the remainder from overtime?

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Definitions:

Machine Hours

A measure of the actual operating time of a machine or piece of equipment, used for costing and manufacturing planning purposes.

Direct Labor

The cost of wages for employees directly involved in the manufacturing or production of goods or services.

Work in Process Inventory

Represents the cost attributed to partially completed goods, which are still being manufactured.

Payroll Payable

Liabilities for wages owed but not yet paid to employees for work performed within a defined period.