Production Scheduling (R. Jaedicke.) A paperboard manufacturing company has two plants, one in Washington and one in California, producing equivalent grades of “cardboard.” The Washington plant has been operating at 75 percent of plant capacity, producing 2,700 tons of cardboard per month, and the California plant has been operating at 60 percent of plant capacity and producing 3,600 tons per month.

The major raw material used in producing the cardboard is waste paper.

For each 100 tons of product, 80 tons of waste paper are required. At the Washington plant the local waste-paper costs are $18.75 per ton of waste paper but the supply is limited to 1,440 tons per month. At the California plant local waste paper costs $20.00 per ton and is limited to 4,000 tons. Additional waste paper must be purchased through brokers at $27.50 per ton (delivered at either plant).

The cost schedules for a typical month’s production are given below.

WASHINGTON PLANT Raw materials (2,160 tons input) $ 46,800 Fixed cost (per month) » 59,400 Variable cost 102,600*

Total cost ($77.33 per ton output) $208,800 CALIFORNIA PLANT Raw materials (2,800 tons input) $ 57,600 Fixed cost 108,000 Variable cost 140,400*

Total cost ($85.00 per ton output) $306,000

* Variable costs are constant per ton of output.

(Disregard any marketing costs in your answer to the questions):

. If the total combined production of both plants is to be continued at the present rate of 6,300 tons per month, would there be any apparent advantage to shifting part of the scheduled production from one of the plants to the other?

If so, which plant’s production should be increased and by how much? What is the amount of the cost savings as a result of this switch?

. If production requirements increased to 9,100 tons per month, how much would you recommend be produced at each plant? (Show calculations.) lop5