2. Neptune Manufacturing Company’s production manager wants an MPS covering next year’s business. The company produces a complete line of small fishing boats for both saltwater and freshwater use and manufactures most of the component parts used in assembling the products. The firm uses MRP to coordinate production schedules of the component part manufacturing and assembly operations. The production manager has just received the following forecast for next year from the marketing division:

The forecast is stated in terms of “standard boats,” reflecting total sales volume for each of the firm’s three major product lines.
Another item of information supplied by the marketing department is the target ending inventory position for each product line. The marketing department would like the production manager to plan on having the following number of standard boats on hand at the end of each quarter of next year:

The inventory position for each product is:

The MPS is to specify the number of boats (in standard units) to be produced for each product line in each quarter of next year on the firm’s single assembly line. The assembly line can produce up to 15,000 standard boats per quarter (250 boats per day during the 60 days in a quarter).
Two additional factors are taken into account by the production manager in preparing the MPS: the assembly line changeover cost and the inventory carrying cost for the finished goods inventory. Each assembly line changeover costs $5,000, reflecting material handling costs of changing the stocking of component parts on the line, adjusting the layout, and so on. After some discussion with the company comptroller, the production manager concluded that the firm’s inventory carrying cost is 10 percent of standard boat cost per year. The item cost for each of the product line standard units is:

The master production scheduler has calculated the production lot sizes as 5,000, 3,000, and 4,000 units, respectively.

a. Develop an MPS for next year, by quarter, for each of Neptune’s fishing boat lines. Identify any problems.

b. Evaluate the production lot size calculations proposed by the master production scheduler. Should they be changed?.

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Product Lines Forecast (Standard Boats for Each Series) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter FunRay series 8,000 9,000 6,000 6,000 SunRay series 4,000 5,000 2,000 2,000 Sting Ray 9,000 10,000 6.000 7,000 series Total 21,000 24,000 14,000 15,000