Davis Instruments has two manufacturing plants located in Atlanta, Georgia. Product demand varies considerably from month to month, causing Davis extreme difficulty in workforce scheduling. Recently Davis started hiring temporary workers supplied by Workforce Unlimited, a company that specializes in providing temporary employees for firms in the greater Atlanta area. WorkForce Unlimited offered to provide temporary employees under three contract options that differ in terms of the length of employment and the cost. The three options are summarized:

   The longer contract periods are more expensive because WorkForce Unlimited experiences greater difficulty finding temporary workers who are willing to commit to longer work assignments.

    Over the next six months, Davis projects the following needs for additional employees:

Each month, Davis can hire as many temporary employees as needed under each of the three options. For instance, if Davis hires five employees in January under Option 2, WorkForce Unlimited will supply Davis with five temporary workers who will work two months: January and February. For these workers, Davis will have to pay 5($4800) = $24,000. Because of some merger negotiations under way, Davis does not want to commit to any contractual obligations for temporary employees that extend beyond June.

   Davis’s quality control program requires each temporary employee to receive training at the time of hire. The training program is required even if the person worked for Davis Instruments in the past. Davis estimates that the cost of training is $875 each time a temporary employee is hired. Thus, if a temporary employee is hired Davis will incur a training cost of $875 in the first month of hire, but will incur no additional training cost if the employee is on a two- or three-month contract.

Managerial Report
Develop a model that can be used to determine the number of temporary employees Davis should hire each month under each contract plan in order to meet the projected needs at a minimum total cost. Include the following items in your report:

  1. A schedule that shows the number of temporary employees that Davis should hire each month for each contract option.

  2. A summary table that shows the number of temporary employees that Davis should hire under each contract option, the associated contract cost for each option, and the associated training cost for each option. Provide summary totals showing the total number of temporary employees hired, total contract costs, and total training costs.
  3. An explanation of how reducing the cost to train each temporary employee to $700 per month affects the hiring plan. Discuss the implications that this effect on the hiring plan has for identifying methods for reducing training costs. How much of a reduction in training costs would be required to change the hiring plan based on a training cost of $875 per temporary employee?
  4. A recommendation regarding the decision to hire additional full-time employees if Davis can hire 10 full-time employees at the beginning of January in order to satisfy part of the labor requirements over the next six months. Assume that Davis can hire full-time employees at $16.50 per hour, including fringe benefits, and that full-time and temporary employees both work approximately 160 hours per month. What effect would does the hiring of additional full-time employees have on total labor and training costs over the six-month period as compared to hiring only temporary employees?