ANALYSIS OF PLAN 2 APPROACH c Although a constant workforce is also maintained in plan 2, it is set low enough to meet demand only in March, the lowest demand-per-day month. To produce 38 units per day (800/21) in-house, 7.6 workers are needed. (You can think of this as 7 full-time workers and 1 part-timer.) All other demand is met by subcontracting. Subcontracting is thus required in every other month. No inventory holding costs are incurred in plan 2.

SOLUTION c Because 6,200 units are required during the aggregate plan period, we must compute how many can be made by the firm and how many must be subcontracted:

In@house production = 38 units per day * 124 production days

= 4,712 units Subcontract units = 6,200 - 4,712 = 1,488 units The costs of plan 2 are computed as follows:

INSIGHT c Note the lower cost of regular labor but the added subcontracting cost.
LEARNING EXERCISE c If demand for June increases to 1,200 (from 1,100), what is the change in cost? [Answer: Subcontracting requirements increase to 1,588 at $20 per unit, for a subcontracting cost of $31,760 and a total cost of $107,152.]
RELATED PROBLEMS c 13.2–13.12, 13.19 ANALYSIS OF PLAN 3 APPROACH c The final strategy, plan 3, involves varying the workforce size by hiring and layoffs as necessary. The production rate will equal the demand, and there is no change in production from the previous month, December

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COST Regular-time labor Subcontracting Total cost $ 75,392 29,760 $105,152 CALCULATIONS (= 7.6 workers x $80 per day x 124 days) (= 1,488 units x $20 per unit)