A key hospital supplier, IVs Plus (IVP) located in Salina, KS sells IV tubing an
ID: 445561 • Letter: A
Question
A key hospital supplier, IVs Plus (IVP) located in Salina, KS sells IV tubing and stands to hospitals and clinics. Sales have picked up ever since they introduced their newest “Squeaky Clean” IV stand, which eliminates all oils and germs left behind by users. Though IVP sells these stands all year long, they sell the most during the summer months, when end-of-fiscal year purchases are at a peak. The demand over the next 12 months is shown in the table below. Use the demand forecasts and determine the lowest cost production plan.
Month
Demand Forecast
Month
Demand Forecast
January
133,067
July
251,630
February
155,026
August
249,630
March
168,200
September
200,312
April
173,890
October
160,830
May
202,759
November
145,266
June
260,842
December
128,900
Regular production cost
$35 per unit
Holding cost
$9 per unit per month based on ending inventory
Backorder cost
$14.00 per unit per month based on ending inventory
Beginning Inventory
200,000 units
Beginning workforce
10 employees
Regular production rate
13,750 units per employee per month
Hiring cost
$9,000 per worker
Firing cost
$10,500 per worker
Produce at a level rate using regular time production only. Backlogs are allowed in any month except December. Ending inventory is allowed in any month. Ending inventory for December should be as low as possible.
How many units are produced for the year using regular time production?
Month
Demand Forecast
Month
Demand Forecast
January
133,067
July
251,630
February
155,026
August
249,630
March
168,200
September
200,312
April
173,890
October
160,830
May
202,759
November
145,266
June
260,842
December
128,900
Explanation / Answer
Total sum of Demand forecasts for the year (twelve months) is calculated as 2,230,352 units. Therefore total production required is 2,030,352 by substracting the beginning inventory of 200,000. Production at a level rate using regular time production only requires, average monthly production of 169,196 (2030352/12) units, in terms of workers average number is 12.30 (169196/13750), given regular production per worker per month is 13,750. As the number of workers for the month needs to be whole number, therefore we should have 13 workers per month to have a fixed level production of 178,750 per month giving a total of 2,145,000 for the whole year. Inventory carrying cost as mentioned $9 per unit per month on the ending level is also given in the table. AS given number of workers in the beginning is 10 therefore 3 are hired with cost of hiring as $27,000 (3*9000)
Month Jan Feb March Apr May Jun Jul Aug Sep Oct Nov Dec Total Average Demand 133067 155026 168200 173890 202759 260842 251630 249630 200312 160830 145266 128900 2230352 169196 Beginning Inventory 200000 245683 269407 279957 284817 260808 178716 105836 34956 13394 31314 64798 Workers hired 3 workers fired 12.30516 Regular Production 178750 178750 178750 178750 178750 178750 178750 178750 178750 178750 178750 178750 2145000 Ending Inventory 245683 269407 279957 284817 260808 178716 105836 34956 13394 31314 64798 114648 Backorders Inventory cost 2211147 2424663 2519613 2563353 2347272 1608444 952524 314604 120546 281826 583182 1031832 16959006Related Questions
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