Her operations manager is considering a new plan, which begins in January with 2
ID: 361285 • Letter: H
Question
Her operations manager is considering a new plan, which begins in January with 200 units of inventory on hand. Stockout cost of lost sales is $125 per unit. Inventory holding cost is $25 per unit per month. Ignore any idle-time costs. The plan is called plan A.
Plan A: Vary the workforce level to execute a strategy that produces the quantity demanded in the prior month. The December demand and rate of production are both 1,600 units per month. The cost of hiring additional workers is $50 per unit. The cost of laying off workers is $75 per unit. Evaluate this plan.
I Jorwary 1,500 | May at3dD February,5ool-June, 2300 March-looo || July: 1,100 i-ano | Ax -+ 1.700 2Explanation / Answer
Total cost of hiring = Since the production increased in the months of April, May and June; hiring had to be done and the total hiring for the period of January to August is 800 in units and cost is $50 per unit; so total cost is 800*50 = $40,000
Total cost of layoff = Since the production decreased in the months of February and August layoffs had to be done and the total layoff for the period of January to August is 700 in units and cost is $75 per unit; so total cost is 700*75 = $52,500
Total Inventory carrying cost = The inventory in units for the period January to August comes to 3,300 and at the rate of $25 per unit we multiply 3,300*25 and we get $82,500
Total stockout cost = The stockout cost due to loss of sale can be derived from the inventory itself. If there is an inventory it means that the item was not sold and it had to be kept and a cost was incurred. As we know the stockout cost is $125 per unit; so for 3,300 units the cost is 3300*125 = $412,500
Total cost, excluding normal time labor cost = The total cost is = 40,000+52,500+82,500+412,500 = $587,500
Period Month Demand Production Hire (Units) Layoff (Units) Ending Inventory Stockout (Units) 0 December 1600 1600 200 200 1 January 1500 1600 100 100 2 February 1500 1500 100 100 100 3 March 1600 1500 200 200 4 April 1900 1600 100 500 500 5 May 2300 1900 300 900 900 6 June 2300 2300 400 900 900 7 July 1700 2300 300 300 8 August 1700 1700 600 300 300 Total (In Units) 800 700 3300 3300 Cost (in $) 40,000 52,500 82,500 412,500 Total Cost (in $) 587,500Related Questions
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