Case Study – Meridian Pumps

Case Study – Meridian Pumps

Level Production Plan

The level production plan above can help the organization determine the required extra costs. The company will require $125 for extra inventory costs, which will be used to hold the 25 ending inventory in the sixth month. As part of HR costs, overtime capacity payment will be required. The level plan above shows that the total overtime capacity required for the six months is 1,625. The required extra capacity can be attained through the hiring of new workers. As shown below, sixty-five new workers will be required at $6,500.

=1625/25

=65

Cost of hiring each worker = $100

Therefore, total extra HR costs = $6,500

Other additional non-financial costs may entail training the new workers to be hired.

Chase Production Plan

The chase production plan entails producing pumps based on demand. Notably, this results in hiring and firing workers to meet a period’s demand needs. From the table, the company will hire 4, 6, and 10 workers in the first three months to meet production demand at $2,000. For the last three months, 13 workers will be fired to maintain production demand at a total cost of $1,300. Therefore, the cost of hiring and firing will be $3,300, which will be the extra HR costs. Extra inventory costs will be $1,375 for the 50 units held in inventory for the first five months and 25 units held in inventory for the last month.

Hybrid Production Plan

The hybrid production plan entails producing pumps based on demand. Notably, this results in hiring and firing workers to meet a period’s demand needs. From the table, the company will hire 2, 8, and 12 workers in the first three months to meet production demand at $2,200. The company will fire 11 workers for the last three months to maintain production demand at $1,100. Therefore, the cost of hiring and firing will be $3,300, which will be the extra HR costs. Extra inventory costs will be $125 required for the 25 units held in inventory in the last month.

Recommendation

Meridian Pumps is recommended to adopt the hybrid production plan. The recommendation is based on the comparison between the three production plans. Essentially, the comparison shows that the level production plan has the highest cost implication for the company. The chase production plan has a medium-level cost implication, while the hybrid production plan has the lowest cost implication. Companies desire to maintain low costs to achieve high profitability (Hiromoto, 2019). Notably, this is the main reason behind the recommendation of the hybrid production plan, which is informed by not maintaining inventory at the end of the periods and hiring and firing workers based on demand to avoid unnecessary human resource costs. Despite the advantages of the recommended hybrid production plan, there is one con that the plan may have on the company. The plan might ruin the company’s reputation by hiring and firing employees every month. Additionally, the plan may attract non-financial costs such as employees blending with each other and adopting to the work environment.

References

Arnold, T. K., Chapman, S., Clive, L. M., & Gatewood, A. K. (2022). Introduction to Materials Management (9th ed.). Pearson Education (US).

Hiromoto, T. (2019). Restoring the relevance of management accounting. In Management Control Theory (pp. 273-288). Routledge.

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Case Study – Meridian Pumps

Please solve the case study on Meridian Pumps at the end of Chapter 2.
Submit your work in a pdf. Please show ALL of your work and make your submission legible.
Answer each of the 4 questions.
1. When developing the level production plan.
a. Draw the demand on a chart (similar to the one shown in the book & note the volumes (#s) and level production plan (#s).
b. Your response should be 100-250 words for Question #1.
2. When developing the chase production plan.
a. Draw the demand on a chart (similar to the one shown in the book & note the volumes (#s) and level production plan (#s).
b. Your response should be 100-250 words for Question #2.
3. When developing the hybrid production plan.
a. Draw the demand on a chart (similar to the one shown in the book & note the volumes (#s) and level production plan (#s).
b. Your response should be 100-250 words for Question #3.
4. What would you recommend and why? What are some of the pros and cons of the solution you recommended? (your response should be 100- 250 words).

Book name:
Arnold, T. K., Chapman, S., Clive, L. M., & Gatewood, A. K. (2022). Introduction to Materials Management (9th ed.). Pearson Education (US).