Suppose you have been given responsibility for developing the six-month aggregat

Question

Suppose you have been given responsibility for developing the six-month aggregate production plan at Soda Galore, a manufacturer of soft drinks. Your company makes three types of soft drinks: regular, diet, and super-caffeinated. Fortunately, all three types are made using the same production process, and the costs related to switching between the three types are so minimal that they can be ignored. Thus, you can treat your problem as an aggregate planning exercise where the planning unit is cases of soft drinks, regardless of what types of drinks they are.

Assume that employees negotiate an increase in the regular production wage rate to $40 per hour and $60 per hour for overtime. Also assume that Soda Galore always plans to hold at least 7,000 cases of safety stock to meet unanticipated customer demand. Assume that hiring and layoff/firing, if necessary, occur at the beginning of the month.

a) Determine the cost of the level production plan.

b)Determine the cost of the chase production plan.

c)After much internal discussion, the company decides to maintain a permanent workforce of 10 production workers. Given the same planning information and this new requirement, develop a six-month production plan based on hybrid production. Determine the cost of the hybrid production plan. Use the overtime cost.

January 16,000 cases February 24,000 cases March 32,000 cases April 32,000 cases May 60,000 cases June 88,000 cases Total Demand 252,000 cases Average Monthly demand 42,000 cases

Explanation / Answer

A. For Level Production: We get 21 workers as regular only

Level Jan Feb Mar Apr May Jun Total Safety stock Demand 16000 24000 32000 32000 60000 88000 252000 Safety Stock 7000 7000 7000 7000 7000 7000 Prod per worker Starting worker Begin Inv 7000 26000 44000 54000 64000 46000 Man power 21 (252000/6*2000) 2000 10 Total requirement 23000 5000 -5000 -15000 3000 49000 Hours/month 100 Regular worker 21 21 21 21 21 21 Act production 42000 42000 42000 42000 42000 42000 (Demand+Safety stock-Act Production-Begin Inv) Closing inv 26000 44000 54000 64000 46000 0 (Regular-Starting worker) Hire 11 0 0 0 0 0 Rate Fire 0 0 0 0 0 0 (Rate*Hour/month *Regular worker) 40 Labor cost 84000 84000 84000 84000 84000 84000 (Hire*Rate) 1000 Hiring cost 11000 0 0 0 0 0 (Fire*Rate) 1500 Firing cost 0 0 0 0 0 0 (Closing inv+Safety stock*Rate) 0.3 Inventory cost 9900 15300 18300 21300 15900 2100 (Sum of all costs) Total cost 597800

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