Eagle Fabrication has the following aggregate demand requirements and other data
ID: 463228 • Letter: E
Question
Eagle Fabrication has the following aggregate demand requirements and other data for the upcoming four quarters.
Quarter
Demand
Previous quarter's output
1500 units
1
1300
Beginning inventory
200 units
2
1400
Stockout cost
$50 per unit
3
1500
Inventory holding cost
$10 per unit at end of quarter
4
1300
Hiring workers
$4 per unit
Laying off workers
$8 per unit
Unit cost
$30 per unit
Overtime
$10 extra per unit
Which of the following production plans is better: Plan A–chase demand by hiring and layoffs; or Plan B–produce at a constant rate of 1200 and obtain the remainder from overtime?
Quarter
Demand
Previous quarter's output
1500 units
1
1300
Beginning inventory
200 units
2
1400
Stockout cost
$50 per unit
3
1500
Inventory holding cost
$10 per unit at end of quarter
4
1300
Hiring workers
$4 per unit
Laying off workers
$8 per unit
Unit cost
$30 per unit
Overtime
$10 extra per unit
Explanation / Answer
Let number of work-hours required by each unit = 10.
Let number of work-hours per day = 8.
Let number of work days in each quarter = 22 x 3 = 66 days.
So worker hours (at 8 per day) for each quarter = 66 x 8 = 528.
Plan-A: Chase demand by hiring and layoffs.
Particulars
Q1
Q2
Q3
Q4
Total
1. Demand
1,300
1,400
1,500
1,300
2. Production Reqmt.
0
(1,400 – 400) x 10 = 10,000
15,000
13,000
3. Hours available per worker at 8 per day
528
528
528
528
4. Number of workers required (2/3)
0
19
29
25
5. Workers available
0
0
19
29
6. Number of additional workers required
0
19
10
0
7. Hiring Cost (in $) (@4 per unit)
0
76
40
0
116
8. Number of workers to be laid-off
0
0
0
4
9. Layoff cost (in $) (@8 per unit)
0
0
0
32
32
10. Ending inventory
1,500 + 200 – 1,300 = 400
0
0
0
11. Inventory holding cost (in $) (@ 10 per unit)
4,000
0
0
0
4,000
Total cost = 116 + 32 + 4,000 = $ 4,116.
Particulars
Q1
Q2
Q3
Q4
Total
1. Demand
1,300
1,400
1,500
1,300
2. Production Reqmt.
0
(1,400 – 400) x 10 = 10,000
15,000
13,000
3. Hours available per worker at 8 per day
528
528
528
528
4. Number of workers required (2/3)
0
19
29
25
5. Workers available
0
0
19
29
6. Number of additional workers required
0
19
10
0
7. Hiring Cost (in $) (@4 per unit)
0
76
40
0
116
8. Number of workers to be laid-off
0
0
0
4
9. Layoff cost (in $) (@8 per unit)
0
0
0
32
32
10. Ending inventory
1,500 + 200 – 1,300 = 400
0
0
0
11. Inventory holding cost (in $) (@ 10 per unit)
4,000
0
0
0
4,000
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