Concept explainers
a)
To evaluate: Plan C for the given information
Introduction: The aggregate plan is the output of sales and operations planning. The major concern of aggregate planning is the production time and quantity for the intermediate future. Aggregate planning would encompass a time prospect of approximately 3 to 18 months.
a)
Answer to Problem 10P
The Plan C has been evaluated. The total cost of Plan C is $104,000.
Explanation of Solution
Given information:
Production for all the months is 1,300 units. Ending inventory in June is 300 units. Overtime cost is $50 per unit. Demand requirement from July to December is given as follows:
Period | Demand | Production (units) |
June | ||
July | 1,000 | 1,300 |
August | 1,200 | 1,300 |
September | 1,400 | 1,300 |
October | 1,800 | 1,300 |
November | 1,800 | 1,300 |
December | 1,800 | 1,300 |
Evaluate the cost of the plan:
Plan C | |||||
Period | Demand | Production (units) | Subcontract (units) | Ending inventory | Extra cost |
June | 300 | ||||
July | 1,000 | 1,300 | 600 | $15,000 | |
August | 1,200 | 1,300 | 700 | $17,500 | |
September | 1,400 | 1,300 | 600 | $15,000 | |
October | 1,800 | 1,300 | 100 | $2,500 | |
November | 1,800 | 1,300 | 400 | 0 | $24,000 |
December | 1,800 | 1,300 | 500 | 0 | $30,000 |
Total | $104,000 |
Note: Production is given as 1,300 units. Ending inventory for June is given as 300 units. If the production is more than or equal to the demand, then there would be inventory. If the demand is more, then there would be stock out.
Calculate ending inventory or subcontract for July:
It is calculated by adding the production and ending inventory of previous month and subtract the result from the demand. Ending inventory for July is 600.
Calculate ending inventory or subcontract for August:
It is calculated by adding the production and ending inventory of previous month and subtract the result from the demand. Ending inventory for August is 700.
Calculate ending inventory or subcontract for September:
It is calculated by adding the production and ending inventory of previous month and subtract the result from the demand. Ending inventory for September is 600.
Even though the demand is high, as there is enough ending inventory in previous month, there would be inventory rather than subcontract.
Calculate the ending inventory or subcontract for October:
It is calculated by adding the production and ending inventory of previous month and subtract the result from the demand. Ending inventory for October is 100.
Even though the demand is high, as there is enough ending inventory in previous month, there would be inventory rather than subcontract.
Calculate ending inventory or subcontract for November:
As the demand is more than the production and there is no enough ending inventory, there would be subcontract.
It is calculated by adding production and ending inventory and the result should be subtracted with the demand. Hence, the subcontract units for November is 400 units.
As the value is in negative, it would be subcontract.
Calculate ending inventory or subcontract for December:
As the demand is more than the production and there is no enough ending inventory, there would be subcontract.
It is calculated by adding production and ending inventory and the result should be subtracted with the demand. Hence, the subcontract units for December is 500 units.
As the value is in negative, it would be subcontract.
Calculate extra cost for July:
It is calculated by multiplying ending inventory units and inventory holding cost. Inventory holding cost is given as $25 per unit. Hence, extra cost for July is $15,000
Calculate extra cost for August:
It is calculated by multiplying ending inventory units and inventory holding cost. Inventory holding cost is given as $25 per unit. Hence, extra cost for August is $17,500
Calculate extra cost for September:
It is calculated by multiplying ending inventory units and inventory holding cost. Inventory holding cost is given as $25 per unit. Hence, extra cost for September is $15,000
Calculate extra cost for October:
It is calculated by multiplying ending inventory units and inventory holding cost. Inventory holding cost is given as $25 per unit. Hence, extra cost for October is $2,500
Calculate extra cost for November:
It is calculated by multiplying ending inventory units and inventory holding cost. Inventory holding cost is given as $60 per unit. Hence, extra cost for November is $24,000
Calculate extra cost for December:
It is calculated by multiplying ending inventory units and inventory holding cost. Inventory holding cost is given as $60 per unit. Hence, extra cost for December is $30,000
Calculate total cost of Plan C:
It is calculated by adding the extra costs of all the periods.
Hence, the total cost for Plan C is $104,000.
b)
To determine: Evaluate plan D for the given information
Introduction: The aggregate plan is the output of sales and operations planning. The major concern of aggregate planning is the production time and quantity for the intermediate future. Aggregate planning would encompass a time prospect of approximately 3 to 18 months.
b)
Answer to Problem 10P
The Plan D has been evaluated. The total cost of Plan D is $93,800.
Explanation of Solution
Given information:
Production for all the months is 1,300 units. Ending inventory in June is 300 units. Overtime cost is $50 per unit. Demand requirement from July to December is given as follows:
Period | Demand | Production (units) |
June | ||
July | 1,000 | 1,300 |
August | 1,200 | 1,300 |
September | 1,400 | 1,300 |
October | 1,800 | 1,300 |
November | 1,800 | 1,300 |
December | 1,800 | 1,300 |
Evaluate the cost of the plan:
Plan D | |||||||
Period | Demand | Regular production (units) | Overtime production (units) | Ending inventory | Sub-contract (units) | Idle time (units) | Extra cost |
June | |||||||
July | 1,000 | 1,300 | 180 | 120 | $11,700 | ||
August | 1,200 | 1,300 | 180 | 100 | $10,500 | ||
September | 1,400 | 1,300 | 80 | $2,000 | |||
October | 1,800 | 1,300 | 260 | 0 | 160 | $20,000 | |
November | 1,800 | 1,300 | 260 | 0 | 240 | $24,800 | |
December | 1,800 | 1,300 | 260 | 0 | 240 | $24,800 | |
Total | $93,800 |
Note: Production is given as 1,300 units. If the production is more than or equal to the demand, then there would be inventory. If the demand is more, then there would be stock out. Maximum overtime units allowed is 260 units (20% of production)
Calculate ending inventory or subcontract for July:
It is calculated by adding the production and ending inventory of previous month and subtract the result from the demand. Ending inventory for July is 180.
It is given that the ending inventory should not exceed 180 units. Hence, the ending inventory would be 180 units and remaining units of 300 (120 units) would be in idle time.
Calculate ending inventory or subcontract for August:
It is calculated by adding the production and ending inventory of previous month and subtract the result from the demand. Ending inventory for August is 180.
It is given that the ending inventory should not exceed 180 units. Hence, the ending inventory would be 180 units and remaining units of 280 (100 units) would be in idle time.
Calculate ending inventory or subcontract for September:
It is calculated by adding the production and ending inventory of previous month and subtract the result from the demand. Ending inventory for September is 80.
Calculate the ending inventory or subcontract for October:
It is calculated by adding the production and ending inventory of previous month and subtract the result from the demand. Subcontract for October is 160.
As the value is in negative, it would be subcontract. Overtime production should not exceed 260 units. Hence, 260 units would be production in overtime production and 160 units (remaining from 420) would be produced in subcontract.
Calculate the ending inventory or subcontract for November:
It is calculated by adding the production and ending inventory of previous month and subtract the result from the demand. Subcontract for November is 240.
As the value is in negative, it would be subcontract. Overtime production should not exceed 260 units. Hence, 260 units would be production in overtime production and 240 units (remaining from 500) would be produced in subcontract.
Calculate the ending inventory or subcontract for December:
It is calculated by adding the production and ending inventory of previous month and subtract the result from the demand. Subcontract for December is 240.
As the value is in negative, it would be subcontract. Overtime production should not exceed 260 units. Hence, 260 units would be production in overtime production and 240 units (remaining from 500) would be produced in subcontract.
Calculate extra cost for July:
It is calculated by adding the multiple of ending inventory units and inventory holding cost and the multiple of idle time and idle time cost. Inventory holding cost is given as $25 per unit and idle time per unit is $60. Hence, extra cost for July is $11,700.
Calculate extra cost for August:
It is calculated by adding the multiple of ending inventory units and inventory holding cost and the multiple of idle time and idle time cost. Inventory holding cost is given as $25 per unit and idle time per unit is $60. Hence, extra cost for August is $10,500.
Calculate extra cost for September:
It is calculated by adding the multiple of ending inventory units and inventory holding cost and the multiple of idle time and idle time cost. Inventory holding cost is given as $25 per unit and idle time per unit is $60. Hence, extra cost for September is $2,000.
Calculate extra cost for October:
It is calculated by adding the multiple of overtime units and overtime cost per unit and subcontract units and subcontract cost per unit. Overtime cost per unit is $40 per unit and subcontract cost is $60 per unit. Hence, extra cost for October is $20,000.
Calculate extra cost for November:
It is calculated by adding the multiple of overtime units and overtime cost per unit and subcontract units and subcontract cost per unit. Overtime cost per unit is $40 per unit and subcontract cost is $60 per unit. Hence, extra cost for November is $24,800.
Calculate extra cost for December:
It is calculated by adding the multiple of overtime units and overtime cost per unit and subcontract units and subcontract cost per unit. Overtime cost per unit is $40 per unit and subcontract cost is $60 per unit. Hence, extra cost for December is $24,800.
Calculate total cost of Plan D:
It is calculated by adding the extra costs of all the periods.
Hence, the total cost for Plan D is $93,800.
Total cost for Plan D is preferable when compare with Plan C. However, Plan D with the total cost of $93,800 is preferable than other plans.
Want to see more full solutions like this?
Chapter 13 Solutions
Pearson eText Principles of Operations Management: Sustainability and Supply Chain Management -- Instant Access (Pearson+)
- Jose Martinez of El Paso had developed a polished stainless-steel tortilla machine that makes it a “showpiece” for display in Mexican restaurants. He needs to develop a 5-month aggregate plan. His forecast of capacity and demand follows: Month 1 2 3 4 5 Demand 150 160 130 200 210 Regular capacity 150 150 150 150 150 Overtime capacity 20 20 10 10 10 Subcontracting: 100 units available over the 5-month period (NOT 100 units each month) Beginning inventory: 0 units Ending inventory required at the last month (i.e. month 5): 20 units. Costs Regular-time cost per unit $100 Overtime cost per unit $125 Subcontracting cost per unit $135 Inventory holding cost per unit per month $3 Assume that backorders are not permitted. a) Find an aggregate production plan using the intuitive lowest cost approach. (i.e. Develop an aggregate plan using the transportation method). b) State the corresponding…arrow_forwardJAYB, manager of a Fabrication company, has the following aggregate demand requirements and other data for the upcoming four quarters. Table 5: Forecast and cost information [Jadual 5: Maklumat Ramalan dan kos] Quarter [Suku] Demand [Permintaan] Previous quarter's output [Keluaran suku sebelumnya] 1,500 units 1 1,400 Beginning inventory [Inventori awal] 200 units 2 1,000 Hiring workers [Pengambilan pekerja] RM6 per unit 3 1,500 Laying off workers [Pembuangan pekerja] RM11 per unit 4 1,300 Unit cost [Kos unit] RM30 per unit With the information given, JAYB wants you to calculate the total cost of using chase strategy by hiring and layoff workers.arrow_forward3) Gang Aft Agley, a manufacturing company, faces the aggregate planning problem shown in the table below. Cost of regular production is $5 per unit, the cost of producing the same unit on overtime is $7, the cost of subcontracting is $8 per unit, and the cost of carrying a unit in inventory from one month to the next is $2. January February March April May Forecast 500 750 1200 650 300 Beginning Inventory 100 Regular Time Overtime Subcontracting Ending Inventory The labor contract at the plant prohibits both overtime and subcontracting output to exceed 300 units in any five month window. The plant capacity is 500 units per month produced using two shifts, regardless of the number of days in a month. By policy, management wants to avoid stockouts. Formulate the aggregate plan using linear programming and solve it using Solver.arrow_forward
- A 98.arrow_forwardHh1. Accountarrow_forward1- Dwayne Cole, owner of a Florida firm that manufactures display cabinets, develops an 8- month aggregate plan.Demand and capacity (in units) are forecast as follows: CAPACITY SOURCE (UNITS) JAN. FEB. MAR. APR. MAY JUNE JULY AUG. Regular time 235 255 290 300 300 290 300 290 Overtime Subcontract Demand 20 24 26 24 30 28 30 30 12 16 15 17 17 19 19 20 255 294 321 301 330 320 345 340 The cost of producing each unit is $1,000 on regular time, $1,300 on overtime, and $1,800 on a subcontract. Inventory carrying cost is $200 per unit per month. There is no beginning or ending inventory in stock, and no backorders are permitted from period to period. Let the production (workforce) vary by using regular time first, then overtime, and then subcontracting. a) Set up a production plan that minimizes cost by producing exactly what the demand is each month. This plan allows no backorders or inventory. What is this plan's cost? b) Through better planning, regular-time production can be set at exactly…arrow_forward
- Define "what-if analysis." How can a spreadsheet be used to plan capacity?arrow_forward1. Develop an aggregate plan for the following forecast Period 3 4 5 6 7 Total 1 2 8 Forecast 190 230 260 280 210 170 160 260 180 1,940 There are 20 workers who can produce 10 units per period at a cost of P6.00 per unit. There is no beginning invetory and the cost of carrying inventory is P5.00 per unit per period. Backlog cost is P10.00 per unit per period. Will the present workforce able to produce the forecast? b. What is the total cost of the plan? a.arrow_forwardExplain the difference between aggregate planning in service and aggregate planning in manufacturing ?arrow_forward
- Describe the difference between aggregate planning in service and aggregate planning in manufacturing ?arrow_forwardThe S&OP team at Kansas Furniture, has received estimates of demand requirements as shown in the table. Assuming one-time stockout costs for lost sales of $100 per unit, inventory carrying costs of $20 per unit per month, and zero beginning and ending inventory, evaluate these two plans on an incremental cost basis: Plan B: Vary the workforce to produce the prior month's demand. The firm produced 1,300 units in June. The cost of hiring additional workers is $35 per unit produced. The cost of layoffs is $65 per unit cut back. (Enter all responses as whole numbers.) Note: Both hiring and layoff costs are incurred in the month of the change (i.e., going from production of 1,300 in July to 1000 in August requires a layoff (and related costs) of 300 units in August). A) see image B)The total cost, excluding normal time labor costs, for Plan B = C)The total stockout cost =arrow_forwardHow does aggregate planning in service differ fromaggregate planning in manufacturing?arrow_forward