Question
The Austin, Texas plant of Computer Products produces disk units for personal and small business computers. Gerald Knox, the plants production planning director, is looking
The Austin, Texas plant of Computer Products produces disk units for personal and small business computers. Gerald Knox, the plants production planning director, is looking over next years sales forecasts for these products and will be developing an aggregate capacity plan for the plant. The quarterly sales forecasts for the disk units are as follows:
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter |
2,310 | 1,980 | 1,980 | 2,340 |
Ample machine capacity exists to produce the forecast. Each disk unit takes an average of 20 labor-hours. In addition, you have collected the following information:
- Inventory carrying cost is $100 per disk unit per quarter. The cost is applied to all units in inventory at the end of a quarter.
- The plant works the same number of days in each quarter, 12 five-day weeks, 6 hours per day.
- Beginning inventory is 150 disk units. These will be used to help satisfy the 1st Quarter demand.
- In a backlog situation, the customer will wait for his order to be filled but will expect a price reduction each quarter he waits. The backlog costs are $300 per disk for the first quarter the customer waits, $700 for the second quarter the customer waits, and $900 for the third quarter the customer waits. In filling orders, backlogged items will always be filled before current quarter items,
- The cost of hiring a worker is $800 while the cost of laying off a worker is $950.
- The straight time labor rate is $20 per hour for the first quarter and increases to $22 per hour starting in the third quarter.
- Overtime work is paid at time and a half (150%) of the straight time work.
- Outsourcing (contract work) is paid at the rate of $475 per disk unit for the labor and Computer Products provides the material.
- Demand during the fourth quarter of the prior year was 1,800 units and was fulfilled using a workforce working at full utilization. The demand for the first quarter of the next year (year following the year you are analyzing) is projected to be at the 2,340 unit level.
Compare the following two sales and operations plans.
i) The company will use a matching (chasing) demand strategy for the first two quarters. For quarters three and four, it will use a level production strategy with no overtime, no shortages during these quarters and no inventory leftover at the end of the fourth quarter. What is the total cost of this option, excluding the material cost?
ii) The company will establish in quarter one and then maintain a workforce capable of producing 2,160 units in a quarter. If there are more workers in a quarter than required to produce the demand for that quarter, only the units required will be produced in that quarter and there will be underutilization. If demand is greater in a quarter than can be produced by the available workforce using straight time labor, the excess units will be met through overtime not to exceed 5,000 hours per quarter. If there is still remaining demand, this will be met through outsourcing. What is the total cost of this option, excluding the material cost?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started