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    Jason Enterp: Production Plan with Level and Chase strategy

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    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

    Materials $100/unit
    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.

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    Solution Preview

    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
    The ...

    Solution Summary

    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.