Question

A manager has projected demand for the next six months (below). Given this information, prepare a LEVEL aggregate plan for production. Assume maximum regular time production is 350 units per month. Overtime is limited to 75 units per month. The limit for subcontracting is 400 per month. The company has a zero beginning inventory and cannot have ending inventory or a backlog at the end of the 6th period. Unit costs are as noted below. Regular Time Cost: $10/unit Overtime Cost: $15/unit Subcontracting Cost: $20/unit Inventory Holding Cost: $4/unit Backorder Cost: $25/unit Projected Demand: Month Forecast 500 440 300 370 550 450 5 6

Answer 1

Period 1    2 3 4 5 6 TOTAL

OUTPUT FORECAST 500 440 300 370 550 450

REGULAR 350 350 300 350 350 350 2050

OVERTIME 75 75 0 20 75 75 320

SUBCONTRACT 75 15 0 0 125 25 240

OUTPUT-FORECAST 500 440 300 370 550 450 2610

INVENTORY

BEGINING 0 0 0 50 0 0 50

ENDING 0 0 50 0 0 0 50

AVERAGE 0 0 25 25 0 0 50

BACKORDERS 0 0 0 0 0 0 0

COSTS

OUTPUT

REGULAR 3500 3500 3000 3500 3500 3500 20500  

OVERTIME 1125 1125 0 300 1125 1125 4800

SUBCONTRACT 1500 300 0 0 2500 500 4800

INVENTORY 0 0 100 100 0 0 200

BACKORDERS 0 0 0 0 0 0 0

A) If the budget for this plan is $50,000 then plan is accepted

B) NO, because subcontracting cost is very high , so it is possible to increase regular units production limit

C) Yes, customers will be happy because their demand for the satisfied

D) Long Term Strategic plan is to increase regular production capacity of unit from current production levels,

with increase production capacity overtime cost and subcontracting cost saved easily