The Austin, Texas plant of Computer Products produces external hard drives for personal and small business computers. Gerald Knox, the plant's production planning director, is looking over next year's sales forecasts for these products and will be developing an aggregate capacity plan for the plant. The quarterly sales forecasts for the external hard drives are as follows:

1^st Quarter

2^nd Quarter

3^rd Quarter

4^th Quarter

1,860

2,700

2,340

2,520

Ample machine capacity exists to produce the forecast. Each external hard drive takes an average of 20 labor-hours. In addition, you have collected the following information:

a. Inventory carrying cost is $100 per external hard drive per quarter. The cost is applied to all units in inventory at the end of a quarter.

b. The plant works the same number of days in each quarter, 12 five-day weeks, 6 hours per day.

c. For several reasons, there is a shortage of 300 units carried over from last year and these units must be provided during the first quarter. There is no holding or backlog costs associated with these 300 units.

d. 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 external hard drive 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 any quarter, if there is a backlog, this backlog will be filled before the demand for that period is filled.

e. The cost of hiring a worker is $800 while the cost of laying off a worker is $950.

f. The straight time labor rate is $20 per hour for the first quarter and increases to $22 per hour in the fourth quarter.

g. Overtime work is paid at time and a half (150%) of the straight time work.

h. Outsourcing (contract work) is paid at the rate of $475 per external hard drive for the labor and you provide the material.

i. Demand is projected to increase this year. Demand during the fourth quarter of the prior year was 2,340 units and this was fulfilled by 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 2,700 unit level.

j. Assume that individuals hired in a quarter are capable of working at the 100% production level if the demand is requires it.

a) You want to maintain a work force capable of producing 2,520 in a quarter. If the total demand for a quarter does not require full production, there will be underutilization and no production will be carried over to the next quarter. If there is underutilization, the works will still be paid at the straight time rate. Any additional demand that cannot be met during the workforce at 100% production will be carried over to the next quarter and will be the first demand fulfilled in that quarter. What is the total cost of this option, excluding the material cost?

b) Use a matching demand strategy not to exceed production capacity of 2,520 external hard drives per quarter with overtime used for any demand above this to ensure that all production requirements are met during each quarter. What is the total cost of this option, excluding the material cost?