The president of Hill Enterprises, Terri Hill, projects the firm\'s aggreg ate d
ID: 383479 • Letter: T
Question
The president of Hill Enterprises, Terri Hill, projects the firm's aggreg ate demand requirements over the next 8 months as follows January February March April 1,400 1,600 1,600 1,800 May June July August 2,200 2,200 1,900 1,500 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 $25 per unit per month. Ignore any idle-time costs. Evaluate the following plan This exercise contains only Plan D 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 $50 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 demand.Explanation / Answer
Plan D is as follows:
Formula: F3 =MAX(0,F2-C3+D3+E3-G2)
G3 =MAX(0,-F2+C3-D3-E3+G2)
OT production units are capped at 20% of regular production. So maximum OT production = 1600*20% = 320 units
OT production is scheduled, in months 5 to 8, when stockouts occur.
Total overtime production cost = Total OT production units * additional cost per unit of OT production
= 1200 * 50 = $ 60,000
Total inventory holding cost = Total ending inventory * inventory holding cost per unit
= 1400 * 25 = $ 35,000
Total stockout cost = Total stockout units * stockout cost per unit
= 780 * 65 = $ 50,700
Total cost = 60000 + 35000 + 50700 = $ 145,700
A B C D E F G 1 Period Month Demand Production (Units) OT Production (Units) Ending Inventory Stockouts (Units) 2 0 December 200 3 1 January 1,400 1,600 400 0 4 2 February 1,600 1,600 400 0 5 3 March 1,600 1,600 400 0 6 4 April 1,800 1,600 200 0 7 5 May 2,200 1,600 320 0 80 8 6 June 2,200 1,600 320 0 360 9 7 July 1,900 1,600 320 0 340 10 8 August 1,500 1,600 240 0 0Related Questions
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