roblem 13.6 Question Help The president of Hill Enterprises, Terri Hill, project
ID: 367994 • Letter: R
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roblem 13.6 Question Help The president of Hill Enterprises, Terri Hill, projects the firm's aggregate demand requirements over the next 8 months as follows January February March April 1,450 1,700 1,800 1,900 May June 2,100 2,100 1,900 1,400 August Her operations manager is considering a new plan, which begins in January with 200 units of inventory on hand. Stockout cost of lost sales is $65 per unit. Inventory holding cost is $20 per unit per month. Ignore any idle-time costs. Evaluate the following plans D and E Plan D: Keep the current workforce stable at producing 1,600 units per month. In addition to the regular production, another 20% of the normal production units can be produced in overtime at an additional cost of $55 per unit. A warehouse now constrains the maximum allowable inventory on hand to 600 units or less Note: Do not produce in overtime if production or inventory are adequate to cover demandExplanation / Answer
Plan D :
Contraints is to satisy demand , ensure there is no stockout and 600 units of inventory can be ending inventory of any month .
Now the table below is given like below
We need to find the right number of OT units , ending inventory and stock out in any month if any.
We do not have to use the OT production unless it is required to satisfy the demand. But the problem is if demand increases drastically the OT units produced during a particular month will not be sufficent to satisy the demand. Because OT production can only be 20% of total production during the month.
As per the given data there are 1600 units can be produced in a particluar month. So if maximum 20% of it will 320 units can be produced as OT.
The total demand for 8 months is = 14350
the carry over from Dec to january = 200
so the production in january = 1600. So the total available inventory in january = 1600+200 = 1800
The demand in January is 1450. As inventory available is more than that of demand. The overtime is not required. The ending inventory is 1800 - 1450 = 350. Stocko out will be 0 in january.
Similarly the demand in feb is 1700. The production in Feb is 1600. the avialable inventory in february = production + carry over from previous month= 1600 + 350 = 1950. the ending inventory = 1950-1700 = 250
Similarly the OT , ending inventory and stock outs calculated and shown in below table
In above table conside the April month. The demand is 1900 and avialable inventory is 1600 ( production ) + 50 (previous month inventory ) = 1650 . So the ending inventory will be 0 as the production qty is lesser than that of demand.The need of stock is there which is demand - available inventory i.e 1900-1650=250. It will go stock out if OT is not produced. Overtime of maximum 20% of total production possibe . i.e 20% * 1600 = 320 unit. But we need only 250 units to satisfy the demand. So 250 units are produced and shown in month of April above.
In may month the demand is 2100. The production is 1600. OT is 320 .So the total inventory avialable is 1600 + 320 ( maximum OT ) = 1920. But still avialable inventory is less than that of demand. So the sock out quantities = 2200 - 1920 =180 units.
The ending inventory will definately be 0.
Similarly for ending inventory and Overtime is calculated and shown for all the months.
Month Demand Production Units December January 1450 1600 February 1700 1600 March 1800 1600 April 1900 1600 May 2100 1600 June 2100 1600 July 1900 1600 August 1400 1600 TOTAL 14350Related Questions
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