DR. EDMUND PRATER QUESTIONS

PROBLEM SITUATION #3
Peter’s Peripherals assembles multimedia upgrade kits --- sets of components for adding sound and video to desktop computers. The demand for their kits for the next four quarters is estimated in the table below. Unit manufacturing cost for each kit is $160. Holding costs on each kit is $80 per quarter. Any kit that must be delivered late is assessed a backorder cost of $120. Each worker is capable of finishing 10 kits per quarter. If the company chooses to vary work force levels, it will incur costs of $400 for each additional worker; $600 for each termination. The company currently has 28 employees.

| |2007 - III |2007-IV |2008 - I |2008 - II |
|Demand |280 |340 |360 |300 |

1. Following a pure chase strategy, production in 2008-II will be ______ kits and will require that: a. 300, six workers be terminated b. 300, six workers be added c. 320, no workers be added d. 240, five workers be terminated e. none of the above

2. Following a pure level strategy, production in 2007 – IV will be ______ units, which will result in ______ units of ending inventory at the end of that quarter. a. 340, 60 b. 320, 20 c. 340, zero d. 320, zero

3. In addition to the cost of assembling the kits, the sum of inventory holding costs and backorder costs associated with a pure level strategy would be ______ a. Zero b. $8,800 c. $4,800 d. $7,200 e. cannot be determined from the data provided

4. In following a pure chase strategy, the company would need to ______ at the start of 2008 – I