The president of Hill Enterprises, Terri Hill, projects the firm’s aggregate dem
ID: 436117 • Letter: T
Question
The president of Hill Enterprises, Terri Hill, projects the firm’s aggregate demand requirements over the next 8 months as follows:Jan. 1,400 May 2,200
Feb. 1,600 June 2,200
Mar. 1,800 July 1,800
Apr. 1,800 Aug. 1,400
* POM for Windows and/or Excel OM.
Her operations manager is considering a new plan, which begins in January with 200 units on hand. Stockout cost of lost sales is $100 per unit. Inventory holding cost is $20 per unit per month. Ignore any idle-time costs. The plan is called plan A.
Plan A: Vary the workforce level to execute a “chase” strategy by producing 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 $5,000 per 100 units. The cost of laying off workers is $7,500 per 100 units. Evaluate this plan.
Explanation / Answer
Month
Demand
Production
Hire
Fire
Cost
Dec
1600
Jan
1400
1200
400
$30,000
Feb
1600
1600
400
$20,000
Mar
1800
1800
200
$10,000
Apr
1800
1800
$0
May
2200
2200
400
$20,000
Jun
2200
2200
$0
Jul
1800
1800
400
$30,000
Aug
1400
1400
400
$30,000
$140,000
Total cost for the plan is $140,000. Note that we do not attempt to include the costs of production – we assume that production costs are the same between all three plans and can therefore be cancelled out in any comparison. Also note that in January, we must incur the firing cost to move from a production level of 1600 to one of 1200.
Month
Demand
Production
Hire
Fire
Cost
Dec
1600
Jan
1400
1200
400
$30,000
Feb
1600
1600
400
$20,000
Mar
1800
1800
200
$10,000
Apr
1800
1800
$0
May
2200
2200
400
$20,000
Jun
2200
2200
$0
Jul
1800
1800
400
$30,000
Aug
1400
1400
400
$30,000
$140,000
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