Jason Enterprises (JE) is producing video telephones for the home market. Quality is not quite as good as it could be at this point, but the selling price is low and Jason can study market response while spending more time on R&D.
At this stage, however, JE needs to develop an aggregate production plan for the six months from January through June. As you can guess, you have been commissioned to create the plan.
We are given the following information.
Month Demand Forecast Number of Working Days
January 500 22
February 600 19
March 650 21
April 800 21
May 900 22
June 800 20
4,250 units 125 days
Inventory holding cost $10/unit/month
Marginal cost of stockout $20/unit/month
Marginal cost of subcontracting $100/unit ($200 subcontracting cost less $100 material savings)
Hiring and training cost $50/worker
Layoff cost $100/worker
Labor hours required 4/unit
Straight-line cost (first eight hours each day) $12.50/hour
Overtime cost (time and a half) $18.75/hour
Current workforce 10
If the beginning inventory is 200 units and no safety stock is allowed, please construct the following.
a. Produce exactly to meet demand: vary workforce (assuming opening workforce equal to first month's requirements).
b. Constant workforce; vary inventory and allow shortages only (assuming a starting workforce of 10).
c. Constant workforce of 10; use subcontracting.
See the attached file for complete solution. The text here may not be copied exactly as some of the symbols / tables may not print. Thanks
Labor hours required 4 per unit
Hiring cost 50 $ per worker
Layoff Cost 100 $ per worker
Cost of material 100 $ per unit
Cost of normal labor $12.50 per hour
Overtime rate $18.75 per hour
Maximum allowed overtime 10% per month
Inventory carrying cost 10 $ per unit per month
Initial Inventory 200 Units
Subcontracting 100 $ per unit
Current Workforce First months requirement
Stockout cost $20 per unit per month
The cost of labor for normal production $50.00 $ per unit
The cost of labor for unit produced in overtime $937.50 $ per unit
This problem explains how to prepare the aggregate production plan with different work force management plans. It tackles two different strategies - level and chase. The solution is presented in Excel model format to make it easy to understand and see how changes in different variables will have an impact on the total cost.