Question

9. Ato Bekele is producing various biscuits in his Company in three factories residing in different parts of Ethiopia. Its line of biscuits exhibits a highly seasonal demand pattern, with peaks during the month of September & October and declines through the months November & December. Given the following costs and monthly sales forecasts, determine whether;

(a) Level production, or (b) chase demand would more economically meet the demand for biscuits:

Months Sales forecast

September 40,000

October 25,000

November 60,000

December 75,000

Hiring costs-------------------------------------------------$ 100 per worker

Firing cost---------------------------------------------------$ 500 per worker

Inventory carrying cost------------------------------------$ 0.5 Cents per biscuits per biscuits

Regular production cost per biscuit----------------------$ 2

Production per employee-------------------------------- 1000 biscuits per month

Beginning work force-------------------------------------100 workers

Answer 1

Total production in all four months =40000+25000+60000+75000=200000

Total average production = 50,000

For optimum level we know that

EOQ= $\sqrt{\frac{2DA}{h}}$

EOQ=$\sqrt{\frac{2\times 50000\times2 }{0.5}}=$ 633

So, Level production will be economical to meet the demand