Forecasted Demand Forecasted Demand (hundreds of cases) (hundreds of cases) Month Workdays Month Workdays July August September October November April May June 23 21 29 20 28 14 33 22 42 20 31 21 July August September October 26 23 20 18 29 18 16 14 December 58 10 33 20 January 19 20 35 23 February March 14 November December 17 28 18 25 20 50 10
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
A local canning company sells canned vegetables to a supermarket chain in the Minneapolis area. A typical case of canned vegetables requires an average of 0.2 day of labor to produce. The aggregate inventory on hand at the end of June is 800 cases. The demand for the vegetables can be accurately predicted for about 18 months based on orders received by the firm. The predicted demands for the next 18 months are as follows: (given)
The firm currently has 25 workers. The cost of hiring and training a new worker is $1,000, and the cost to lay off one worker is $1,500. The firm estimates a cost of $2.80 to store a case of vegetables for a month. They would like to have 1,500 cases in inventory at the end of the 18-month planning horizon.
a. Develop a spreadsheet to find the minimum constant workforce aggregate plan and determine the total cost of that plan.
b. Develop a spreadsheet to find a plan that hires and fires workers monthly in order to minimize inventory costs. Determine the total cost of that plan as well.
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