Consider the following information: (Use the Level Strategy) Period 1 2 3 4 5 6
ID: 393134 • Letter: C
Question
Consider the following information: (Use the Level Strategy)
Period
1
2
3
4
5
6
total
Forecast
400
400
600
800
1000
400
3600
Regular Time
$40 per unit (560 units per period maximum)
Overtime
$60 per unit (80 units per period maximum)
Subcontracting
None available
Beginning Inventory
0
Carrying Cost
$10 per unit per period
Backorder Cost
$50 Per unit per period
Q3) How should overtime be utilized? (In which period and in what quantities?)
Period
1
2
3
4
5
6
total
Forecast
400
400
600
800
1000
400
3600
Explanation / Answer
As per Level strategy, quantity to be produced in each quarter will be same .
To arrive at that monthly average production quantity , one needs to add up total production for 6 periods and divide by 6.
Therefore ,
Total production for 6 periods = 400 + 400 + 600 + 800 + 1000 + 400 = 3600
Average production per month = 3600 / 6 = 600
It is to be noted , excess production over forecast for corresponding period will generate inventory which will be used in subsequent period when production volume will be less than forecast. Under such situation, overtime will be called for when the inventory at hand will not be sufficient to bridge the shortfall gap of production over forecast.
Basis above, please find schedule of overtime as per following table :
Period
1
2
3
4
5
6
Forecast
400
400
600
800
1000
400
Production
600
600
600
600
600
600
Inventory at hand
200
400
400
200
0
200
Overtime
200
It is to be noted :
Inventory at hand for period t = Inventory at hand for period t-1 + production for period t – Forecast for period t
Moment Inventory at hand for period t ( as per above formula ) gets negative , overtime quantity becomes same as the absolute value of Inventory at hand for period t .
Based on above , overtime for 200 units will be ordered for period 5
Overtime shall be utilized for period 5 for 200 units
Period
1
2
3
4
5
6
Forecast
400
400
600
800
1000
400
Production
600
600
600
600
600
600
Inventory at hand
200
400
400
200
0
200
Overtime
200
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