Pacific Chemical Products, Inc

question 39

Essay

Pacific Chemical Products, Inc.produces a liquid laundry detergent and is currently in the process of developing an aggregate plan for the upcoming year.They don't know whether to use a level capacity or a matching demand approach.The costs that they are concerned with are the cost of hiring more workers, the cost of laying off workers, and the cost of carrying inventory.Currently at Pacific it costs $200 to hire a new worker, the cost of laying off one worker is $250, and the inventory carrying cost per unit per quarter is $4.The company has 65 working days per quarter and each person works only an 8 hour day.The labor standard for each gallon of detergent is 1.5 hours and the forecasted demand for the next four quarters is 30,000, 35,000, 47,000, 43,000 gallons.
a.Using a level capacity plan, how many workers are needed each quarter?
b.What is the average inventory level under the level capacity plan?
c.What is the total annual inventory cost under a level capacity plan?
d.Under a matching demand plan, how many workers are needed in the second quarter?
e.What is the total hiring and firing costs using a matching demand plan?

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Definitions:

Asset Value

The value of a company's assets, often used in determining its worth or the value of its shares.

Expected Excess Return

The additional return investors anticipate receiving on an investment over the risk-free rate as compensation for taking on higher risk.

Expected Return

The forecasted amount of profit or loss an investment is likely to generate over a given period.

Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates higher volatility than the market.