Question

. The TM toy manufacturing company makes fancy dolls. The quarterly aggregate demand for TM dolls for next year is shown below. It takes 30 minutes to assemble a doll, inventory carrying cost for a doll is S0.40 per quarter and backlog cost is S2 per quarter. Quarter 4 Aggregate Demand 24,000 36,000 30,000 14,000 Assume each quarter has 65 working days and workers work 8 hours per day. Inventory at the start of the 1st quarter is 5,000 dolls and the desired inventory at the end of the 4th quarter is 5,000. Hiring cost is $600 and layoff cost is S1,400 per worker. The company is considering two capacity plans for next year: level capacity plan and chase demand plan. Calculate the cost of each plan and indicate which plan you recommend. For both sr of he 1st quarter (no initial hiring)

Answer 1

Level production plan

B H 1 Level production strategy 2 Quarter Time required(HOUR) Workers required Hire Layoff 3000 7000 Demand Regular production Ending Inventory Backlog 5000 1 24000 26000 7000 2 36000 26000 3 30000 26000 0 4 14000 26000 5000 104000 12000 Total Per unit 4800 0.4 20000 600 1400 13000 13000 13000 13000 52000 8 Total 10000 100 10 Inventory carrying cost 11 Backlog cost 12 Hire cost 13 lay off cost 14 15 Total 24800 16

Formula

DE F H 1 Level production strategy 2 Quarter Demand Regular production Time required(HOUR) Workers required Hire Layoff 3 4 1 5 2 63 7 4 8 Total 0 24000 36000 30000 14000 Ending Inventory Backlog 5000 7000 3000 7000 5000 =SUM(D4:07) SUM(E4:E7) 26000 26000 26000 26000 =SUM(C4:07) Per unit 0.4 =C4*(30/60) C5*(30/60) =C6*(30/60) =C7*(30/60) -SUM(F4:F7) =F4/(65*8) =F5/(65*8) =F6/(65*8) =F7/(65*8) =SUM(G4:G7) 0 =SUM(H4:47) =SUM(14:17) 9 10 Inventory carrying cost 11 Backlog cost 12 Hire cost 13 lay off cost Total =D8*C10 =E8*C11 =H8*C12 =18*C13 600 1400 14 15 Total 16 =SUM(B10:B13)

Chase capacity plan

G H I Time required(HOUR) Workers required Hire Layoff 12000 18000 15000 7000 52000 23.07692308 0 34.61538462 11.53846 28.84615385 05.769231 13.46153846 0 15.38462 100 11.53846 21.15385 E 1 Chase production strategy Quarter Demand Regular production Ending Inventory Backlog 5000 1 24000 24000 5000 2 36000 36000 5000 3 30000 30000 5000 4 14000 14000 5000 8 Total 104000 20000 Total Per unit 10 Inventory carrying cost 8000 0.4 11 Backlog cost 12 Hire cost 6923.08 13 lay off cost 29615.4 1400 14 15 Total 44538.5 16 17 600

Formula

Demand Regular production Backlog Time required(HOUR) Workers required Hire Layoff 24000 36000 30000 14000 =G5-G4 Ending Inventory 5000 5000 5000 5000 5000 =SUM(D4:07) =B4 =B5 =B6 =B7 =SUM(C4:07) Per unit 0.4 =C4*(30/60) C5*(30/60) =C6*(30/60) =C7*(30/60) =SUM(F4:F7) =F4/(65*8) =F5/(65*8) =F6/(65*8) =F7/(65*8) =SUM(G4:47) =G5-G6 =G6-67 =SUM(14:17) =SUM(E4:E7) 1 Chase production strategy 2 Quarter 3 4 1 5 2 6 3 74 8 Total 9 10 Inventory carrying cost 11 Backlog cost 12 Hire cost 13 lay off cost 14 15 Total 16 =SUM(H4:H7) Total =D8*C10 =E8*C11 =H8*C12 =18*C13 600 1400 =SUM(B10:B13)

Level capacity plan is recommended as it is producing lower cost