The president of Hill Enterprises, Terri Hill, projects the firm\'s aggregate de
ID: 383805 • Letter: T
Question
The president of Hill Enterprises, Terri Hill, projects the firm's aggregate demand requirements over the next 8 months as follows 2,100 2,300 1,900 1,500 May June January February March April 1,400 1,700 1,700 1,800 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 $70 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 $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
Total demand over 8 months = 14400
Total regular production over 8 months = 1600*8 = 12800
Difference between demand and regular production = 14400-12800 = 1400
Maximum OT production = 20% of regular production = 1600*20% = 320
This gap is met by OT prduction spread over 5 months starting 120 units April, and 320 units each in May to August.
Formula: Ending Inventory F3 =MAX(0,F2-C3+D3+E3-G2)
G3 =MAX(0,-(F2-C3+D3+E3-G2))
Total overtime production cost = 1400*55 = $ 77,000
Total inventory holding cost = 1020*25 = $ 25,500
Total stockout cost = 920*70 = $ 64,400
Total cost = 77000+25500+64400 = $ 166,900
A B C D E F G 1 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 1,700 1,600 300 0 5 3 March 1,700 1,600 200 0 6 4 April 1,800 1,600 120 120 0 7 5 May 2,100 1,600 320 0 60 8 6 June 2,300 1,600 320 0 440 9 7 July 1,900 1,600 320 0 420 10 8 August 1,500 1,600 320 0 0 11 Total 1,400 1,020 920Related Questions
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