Question

Manager Chris Channing of Fabric Mills, Inc., has developed the forecast shown in the table for bolts of cloth. The figures are in hundreds of bolts. The department has a normal capacity of 275(00) bolts per month, except for the seventh month, when capacity will be 250(00) bolts. Normal output has a cost of $40 per hundred bolts. Workers can be assigned to other jobs if production is less than normal. The beginning inventory is zero bolts.

Month	1	2	3	4	5	6	7	Total
Forecast	250	300	250	300	280	275	270	1,925

a. Develop a chase plan that matches the forecast and compute the total cost of your plan. Overtime is $60 per hundred bolts. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Period	1	2	3	4	5	6	7	Total
Forecast	250	300	250	300	280	275	270	1,925
Output
Regular
Overtime
Subcontract
Output - Forecast
Inventory
Beginning
Ending
Average
Backlog
Costs:
Output
Regular	$							$
Overtime
Subcontract
Inventory
Backorder
Total	$							$

b. Would the total cost be less with regular production with no overtime, but using a subcontractor to handle the excess above normal capacity at a cost of $50 per hundred bolts? Backlogs are not allowed. The inventory carrying cost is $2 per hundred bolts. (Round your Average valuesto 1 decimal place. Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Period	1	2	3	4	5	6	7	Total
Forecast	250	300	250	300	280	275	270	1,925
Output
Regular
Overtime
Subcontract
Output - Forecast
Inventory
Beginning
Ending
Average
Backlog
Costs:
Regular	$							$
Overtime
Subcontract
Inventory
Backorder
Total	$							$

Answer 1

answer:

a) Under pursue plan, production should be coordinated to demand forecast every month, subject to the condition that normal capacity limited is restricted to 275(00) bolts every month and 250(00) in the last month. So, in the table below, period 1 creation will be equivalent to period 1 demand,i.e, 250(00) bolts (Which is within normal capacity of 275(00) ). In period 2, demand is 300 but normal capacity is is restricted to 275, so regular production is 275 and balance 300 - 275 = 25 to be produced utilizing additional time. Additionally, for additional periods. In period 7, request is 270, in any case, normal capacity is 250, so again 20 will be created utilizing extra time.

Further, inventory will be 0 at all times since starting inventory is 0 and for every period creation is coordinated to demand forecast.

Likewise, output costs are determined as regular cost being regular output during the period * $40 per hundred bolts, so for instance, for period 1, regular output cost = 250 * $40 = $10,000 and correspondingly, for periods 2 to 7. Total regular production cost = $74,000.

Extra time costs for every period are determined as additional time production in every period * $60. Thus, for period 2, additional time cost = 25 * $60 = $1,500. Total overtime cost = $4,500

Subcontract, inventory and backorder costs are nil.

Period	1	2	3	4	5	6	7	Total
Forecast	250	300	250	300	280	275	270	1925
Output
Regular	250	275	250	275	275	275	250	1850
Overtime	0	25	0	25	5	0	20	75
Subcontract	0	0	0	0	0	0	0	0
Output-forecast
Inventory
Beginning	0	0	0	0	0	0	0	0
Ending	0	0	0	0	0	0	0	0
Average	0	0	0	0	0	0	0	0
Backlog	0	0	0	0	0	0	0	0
Costs
Output
Regular	10000	11000	10000	11000	11000	11000	10000	74000
Overtime	0	1500	0	1500	300	0	1200	4500
Subcontract	0	0	0	0	0	0	0	0
Inventory	0	0	0	0	0	0	0	0
Backorder	0	0	0	0	0	0	0	0
Total	10000	12500	10000	12500	11300	11000	11200	78500

b)  Under regular production methodology, normal capacity output is delivered in every month. If same is less than demand, subcontracting alternative is utilized and if same is in excess of demand, inventory is put away. In this way, in the table below, for period 1, normal capacity output is 275 while demand is 250, so abundance (inventory) is 25. Next, in period 2, starting inventory= period 1 consummation inventory = 25, production = 275, and demand= 300, so finishing inventory= 25+275-300 = 0. Normal inventory for every period is determined as (finishing inventory of current period + finishing inventories of prior periods)/No. of periods including current period. In this way, for period 2, normal inventory is (25+0)/2 = 12.5. In period 3, normal inventory is (25+0+25)/3, etc. We see the requirement for subcontract arises in period 5, when production less than demand and there is no stock to meet the abundance. In this way, subcontracting for 300 - 275 = 5(00) bolts.

Next, normal production cost is $40 * every period's regular production.

Subcontracting cost is $50 * every period's subcontracted production

Inventory conveying cost is $2 * finishing inventory (inventory conveyed) in every period.

Including everything gives us total cost as $77,350, which is lower than the total cost in choice.

Period	1	2	3	4	5	6	7	Total
Forecast	250	300	250	300	280	275	270	1925
Output
Regular	275	275	275	275	275	275	275	1900
Overtime	0	0	0	0	0	0	0	0
Subcontract	0	0	0	0	5	0	20	25
Output-forecast
Inventory
Beginning	0	25	0	25	0	0	0	0
Ending	25	0	25	0	0	0	0	0
Average	25.0	12.5	16.7	12.5	10.0	8.3	7.1	92.1
Backlog	0	0	0	0	0	0	0	0
Costs:
Output
Regular	11000	11000	11000	11000	11000	11000	10000	76000
Overtime	0	0	0	0	0	0	0	0
Subcontract	0	0	0	0	250	0	1000	1250
Inventory	50	0	50	0	0	0	0	100
Backorder	0	0	0	0	0	0	0	0
Total	11050	11000	11050	11000	11250	11000	11000	77350