The S&OP team at Kansas Furniture, has received estimates of demand requirements
ID: 451827 • Letter: T
Question
The S&OP team at Kansas Furniture, has received estimates of demand requirements as shown in the table. Assuming stockout costs for lost sales of $100 per unit, inventory carrying costs of $30 per unit per month, and zero beginning and ending inventory, evaluate the following plan on an incremental cost basis: Plan B: Vary the workforce to produce the prior month's demand. The firm produced 1,300 unit in June. The cost of hiring additional workers is $30 per unit produced. The cost of layoffs is $65 per unit cut back. (Enter all responses as a 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 1,000 in August requires a layoff ( and related costs) of 300 units in August).
Month Demand Production Hire Layoff End Inventory Stockout
July 1000
August 1200
September 1400
October 1800
November 1800
December 1800
Explanation / Answer
Total demand of units from July to December = 9000
July to December = 6 months
Evenly distributing the production = 9000/6 = 1500 units/month.
Taking the initial inventory level as 0.
Plan 1: Producing 1500 units / month
Month
Demand
Production
Hire ($30)
Layoff($ 65)
End Inventory ($ 30)
Stockout ($100)
July
1000
1500
45000
500
August
1200
1500
45000
0
800
September
1400
1500
45000
0
900
October
1800
1500
45000
0
600
November
1800
1500
45000
0
300
December
1800
1500
45000
0
0
$ 270,000
$ -
$ 3,100
The total cost incurred as per the plan of producing 1500units /month = $ 273,100
Month
Demand
Production
Hire ($30)
Layoff($ 65)
End Inventory ($ 30)
Stockout ($100)
June
1300
0
July
1000
1000
30000
19500
0
August
1200
1200
36000
0
September
1400
1400
42000
0
October
1800
1800
54000
0
November
1800
1800
54000
0
December
1800
1800
54000
0
$ 270,000
$ 19,500
$ -
The total cost incurred as per the plan of producing for demand = $ 289,500
Month
Demand
Production
Hire ($30)
Layoff($ 65)
End Inventory ($ 30)
Stockout ($100)
July
1000
1500
45000
500
August
1200
1500
45000
0
800
September
1400
1500
45000
0
900
October
1800
1500
45000
0
600
November
1800
1500
45000
0
300
December
1800
1500
45000
0
0
$ 270,000
$ -
$ 3,100
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