Question

Problem #1 The president of Hill Enterprises, Terri Hill, projects the firm's aggregate demand requirements over the next 8 months as follows: Jan Feb Mar Apr 1,400 1,600 1,800 1,800 June Ju Aug 2,200 2,200 1,800 1,800 Her operations manager is considering a new plan, which begins in January with 200 units on hand. Stockout cost of lost sales is $100 per unit. Inventory holding cost is $ 20 per unit per month. Ignore any idle- time costs. The plan is called plan A. Plan A: Vary the workforce level to execute a "chase" strategy by producing the quantity demanded in the prior month. The December demand and rate of production are both 1,600 units per month. The cost of hiring additional workers is $ 5,000 per 100 units. The cost of laying off workers is $ 7,500 per 100 units. Evaluate this plan. PX Note: Both hiring and layoff costs are incurred in the month of the change. For example, going from 1,600 in January to 1,400 in February incurs a cost of layoff for 200 units in February

Answer 1

Period Expected Demand 1 1400 1600 1800 1800 2200 2200 1800 1800 14600 4 Total

PeriodDemand Production(Demand of Previous Month) Inventorv(Units) Stockout(Units) Hire(Units Layoff(Units 1600 1400 1600 1600 1400 1600 Jan 200 200 Mar Apr May Jun Jul Aug 200 400 1800 400 400 Total (Units) 1400 800 600 At the rate $20 At the rate $100 At the rate $50 At the rate $75 Total(Price) 40000 45000

1. December demand was 1,600, and because our strategy is chasing prior-perioddemand, our January production is 1,600. So 200 units remain in inventory, andJanuary production adds 200 units to this inventory, for a total of 400 units. 2. Inventory units:Jan 400 + Feb 200 + July 400 + Aug 400 = 1,400 units at USD 20 = USD 28,000. 3.Stockout units:May 400 units at USD 100 USD 40,000 4.Hiring and layoff costs:Hiring and layoff costs USD 85,000 5·Total costs:Total costs USD 28,000 + USD 40,000 +USD 85,000-USD 153,000.