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Sem 5 Prep
← OperationsCosting an aggregate plan

Formulas for this chapter

Inventory rows

Beginning(t) = Ending(t-1) Ending(t) = Beginning(t) + Output(t) - Forecast(t) Average(t) = ( Beginning(t) + Ending(t) ) / 2

Every aggregate plan. If Ending would be negative, set it to zero and put the shortfall in the backlog row.

Output
Regular time plus part time plus overtime plus subcontract
Average
The row the carrying charge is applied to

Total cost of an aggregate plan

Total = Regular units x regular rate + Overtime units x overtime rate + Part-time units x part-time rate + Subcontract units x subcontract rate + Hire/layoff cost + Total AVERAGE inventory x carrying rate + Backlog units x backorder rate

Costing any plan. Give a per-period total row as well, so an error can be localised.

carrying rate
Cost per unit per period, applied to average inventory
backorder rate
Cost per unit per period of unmet demand; usually much higher than the carrying rate

Production-days output

Monthly output = output per day x production days in the month Level daily rate = total demand / total production days

When the problem gives working days per month. A constant daily rate gives an uneven monthly output.

output per day
Units the workforce produces in one working day
production days
Working days in that particular month
Step 3 of 19
The real wordsTheory

The three inventory rows

This is where the marks go missing, so learn it as three separate lines.

Beginning inventory (period t) = Ending inventory (period t-1) Ending inventory = Beginning + Output - Forecast Average inventory = (Beginning + Ending) / 2

The carrying charge is applied to average inventory, not to ending inventory. Using ending inventory is the single commonest error in this topic.

If ending inventory would go negative, set it to zero and put the shortfall in the backlog row instead.

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