Eastern Electric makes washers and dryers. The production requirements for aggre
ID: 458799 • Letter: E
Question
Eastern Electric makes washers and dryers. The production requirements for aggregate units are given in the table below. An employee can produce 20 units per month on regular time and can produce an additional two units per month on overtime. Currently, 25 people are employed with no overtime being used. New workers can be hired, but there is a $950 per employee cost; layoff costs are $ 1500 per employee. Regular-time salary is $ 1750 per employee per month with overtime costs of $180 per unit per employee. Carrying costs are $15 per unit per month, and backorder costs are $30 per unit per month. There is currently no inventory on hand. Develop an aggregate plan for the next five months.
Month 1 2 3 4 5
Demand 450 550 600 625 675
Explanation / Answer
Current Employees are 25 people . So number of units produced by 25 people = 25* 20 ( per person capacity) =500 units.
Total regular time salary for 25 people = 25 * $ 1750 per person = $ 43750 .
Cost per new worker hired = $ 950 per emplyee cost + $1500 lay off cost = $ 2450
Month 1 Plan:
Demand is 450 units .
Current 25 people will produce = 25 * 20 units = 500 units.
Cost of production = 25 * $ 1750 = $ 43750
Excess stock by end of 1st month = 500 Units ( production) - 450 units ( demand) = 50 units will carry forward to Month 2
Month 2 Plan :
50 units carried from month 1 which will cost = 50 * $ 15 =$ 750 ( total carrying cost )
Total Demand =550 Units.
Net Demand = 550 units - 50 ( carried) = 500.
Now current emplyees production capacity = 500 units which fullfills the demand.
Total cost of production in Month 2 = $ 43750 ( current empoyees salary ) + $ 750 ( carrying cost ) = $ 44500
Month 3 Plan :
Demand is 600 Units
current employess capacity = 500 units .
Balance Demand = 600 - 500 = 100 units.
Now if we put 25 current people overtime , then per person should produce = 100/25 = 4 unit.
So the extra cost of current employees = 25 * 4 * $ 180 = $ 18000 .
if we hire new workers instead of asking current employees to work overtime , we need 100 ( extra units ) /20 (units per emplyee capacity ) =5 ( New employees) .
Total cost of extra New employees = 5 * $ 2450 ( extra cost of new employee mentioned ablove) = $ 12250 which is lesser than extra cost of current employees working overtime ( $ 18000 mentioned above ).
We will hire 5 new employess. the total cost of production in Month 3 = $ 43750 ( current employee salary ) + $ 12250 ( extra cost of new emplyees hired for the month ) = $ 56000
Month 4 Plan :
Month 4 demand = 625 units .
As we know capacity of current employees = 500 units
net Demand = 625- 500 = 125 units.
We know cost of hiring new emplyees is lesser than that of paying employee over time .
Here we can hire 6 new employees whose output will be 120 units ( 20 units per new employee) .
cost of 6 new employees = 6 * $ 2450 = $ 14700
So balance demand =125 units - 120 units = 5 units which will be produced next month as backorder.
Total cost in the month 4 = $ 43750 ( current employees salary ) + $ 14700 ( new employees salary) = $ 58450
Month 5 plan:
Demand for month 5 = 675 units + 5 units ( backorder ) = 680
current employees will produce 500 units
Net Demand = 680 - 500 = 180 units .
New employees required to produce 180 units = 180/ 20 units ( per person capacity) = 9 New people.
Now cost of 9 new mebmbers = 9 * $ 2450 ( Per new employee cost ) = $22050.
Back order cost = 5 units * $ 30 = $150
Total cost for the month of 5 = $ 43750 ( current employee salary )+ $ 22050 ( New employee cost ) + $ 150 = $65950.
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