2. Which option would you prefer to increase the capacity to optimize the cost function? Sudershan Gupta,

Question:

2. Which option would you prefer to increase the capacity to optimize the cost function?

Sudershan Gupta, CEO of MICEL INDIA, manufacturing voltage regulator wanted to finalize the aggregate plan. He organized a meeting with his Production, Finance and Marketing Managers. Marketing Manager had a promotional plan to boost the sale, which was already in an increasing trend due to longer durability, less weight and cost, better voltage control. This company was manufacturing a big variety of voltage regulators for varying applications such as TV, freeze and main supply (MS) at input end and for industrial appli- cations. In this product mix, the company's major market share was for the application of TV, freeze and for main supply. To produce one unit of each category of voltage regulator for these three types, viz. TV. freeze and main supply, the production department took 3, 4.5 and 5 hours, respectively. The company's facility was running with the labour capacity input of 20 labour for 8 hours per day for 300 working days in a year. As the company's marketing manager wanted to opt for a promotional plan, so the company is expecting further increase in sale of about 10% every quarter after the promotion campaign. The promotion campaign would be costing Rs. 10 Lac. There are three options to increase the capacity as follows:

(a) Increasing the labour upto 30 with the same number of working days and working hours per day.

(b) By getting extra work done in over time by paying extra premium of Rs. 10 per our hour.

(c) Varying the production and inventory level. Production level change costs at Rs. 10 persent. Inventory carrying cost is Rs. 6 per hour. But the company's policy is not to carry large inventory due to high cost of the product. The following table shows the expected customer orders for all the four quarters of the coming year and selling price per unit:

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