A manager faces peak (weekly) demand for one of her operations, but is not sure

Question

A manager faces peak (weekly) demand for one of her operations, but is not sure how long the peak will last. She can either use overtime from the current workforce, or hire/lay off and just pay regular-time wages. Regular-time pay is $500 per week, overtime is $750 per week, the hiring cost is $2,000, and the layoff cost is $3,000. Assuming that people are available seeking such a short-term arrangement, how many weeks must the surge in demand last to justify a temporary hire? Hint: Use break-even analysis (see Supplement A,

Explanation / Answer

Let the number of weeks be w 2000+3000 + 500*w = 750*w 5000= 250w w= 20 weeks the surge in demand to 20 weeks will justify a temporary hire fixed cost for the regular-time option = 2000+3000=$5000

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