The president of Hill Enterprises, Terri Hill, projects the firm’s aggregate dem

Question

The president of Hill Enterprises, Terri Hill, projects the firm’s aggregate demand requirements over the next 8 months as follows:

Jan. 1,500      May 2,200

Feb. 1,600     June 2,200

Mar. 1,700      July 1,800

Apr. 1,800     Aug. 1,400

Her operations manager is considering a new plan, which begins in January with 200 units on hand and ends with zero inventory. 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 B.

Plan B: Produce at a constant rate of 1,400 units per month, which will meet minimum demands. Then use subcontracting, with additional units at a premium price of $80 per unit. Subcontracting capacity is limited to 800 units per month. Evaluate this plan by computing the costs for January through August.

A. **** In order to arrive at the costs, first compute the ending inventory and subcontracting units for each month *****

B. The total subcontracting costs = $???

C. The total Inventory Carrying Cost = $???

D. The total cost, excluding normal time labor costs, is = $???

Explanation / Answer

MONTH Jan Feb Mar Apr May Jun Jul Aug Demand 1500 1600 1700 1800 2200 2200 1800 1400 Capacity      Regular 1400 1400 1400 1400 1400 1400 1400 1400 Subcontract Cost $80 Inventory Holding Cost $20 Stock Out Cost $100 Period Jan Feb Mar Apr May Jun Jul Aug       Total Forecast (A) 1500 1600 1700 1800 2200 2200 1800 1400 14200 Output                       Regular (B) 1400 1400 1400 1400 1400 1400 1400 1400 11200     Subcontract (C = A - B - F), if >0 0 100 300 400 800 800 400 0 2800 Output - Forecast (B+C) 1400 1500 1700 1800 2200 2200 1800 1400 14000 Inventory                       Beginning (F = Last period ending) 200 100 0 0 0 0 0 0 300     Ending (E - A, if positive) 100 0 0 0 0 0 0 0 100     Average 150 50 0 0 0 0 0 0 200 Backlog 0 0 0 0 0 0 0 0 0    Costs:                          Subcontract (Subcontract Output * $80) $0 $8,000 $24,000 $32,000 $64,000 $64,000 $32,000 $0 $224,000 Inventory (Average Inventory * $20) $3,000 $1,000 $0 $0 $0 $0 $0 $0 $4,000 Backlog (Backlog * $100) $0 $0 $0 $0 $0 $0 $0 $0 $0    Total $3,000 $9,000 $24,000 $32,000 $64,000 $64,000 $32,000 $0 $228,000

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.