Question

The president of Hill Enterprises, Terri Hill, projects the firm's aggregate demand requirements over the next 8 months as follows: January 1.400 May 2,100 2,300 February March 1,700 June 1.800 July 1,700 April 1.800 August 1,400 considering a new plan, which beains in January with 200 units inventory on hand. Stockout cost of lost sales is S70 per unit. Inventory holding cost is $25 per unit per month. Ignore any idle-time costs. Evaluate the Her operations managen following plan. This exercise contains only Plan D. Plan D: Keep the current workforce stable at producing 1,600 units per month. addition to the regular production, another 20% ofthe nomal production units can produced in overtime at an additional cost of S55 per unit. A warehouse now constrains the maximum allowable inventory on hand to 600O units or less. Note: Do not produce in overtime if production or inventory are adequate to cover demand. Plan D O.T. Production Production Ending In (Units) Stockouts (Units) Demand (Units) Mon December ventory 1 January 1 400 1600 2 February 1,600 1.700 3 March 1.800 1.600 4 April 1.600 1 800 5 May 2.100 600 6 June 2,300 L600 7 July 1.700 1.600 8 August 1,400 1.800

Answer 1

Period	Month	Demand	Production	O.T. production(units)	Ending Inventory	Stockouts(units)
0	December				200
1	January	1400	1600	0	400	0
2	February	1700	1600	0	300	0
3	March	1800	1600	0	100	0
4	April	1800	1600	100	0	0
5	May	2100	1600	320	0	180
6	June	2300	1600	320	0	380
7	July	1700	1600	100	0	0
8	August	1400	1600	0	200	0
Total				840	1000	560

Explanation:

In April overtime production of 100 units happened as production + inventory fell short by 100 units to satisfy demand

In May again there is a shortfall of 500 units out of which maximum 320 units could be produced overtime (20% of normal production i.e 1600 units = 320 units) resulting in shortfall of 180 units

In June again there is a shortfall of 700 units out of which maximum 320 units could be produced overtime (20% of normal production i.e 1600 units = 320 units) resulting in shortfall of 380 units

Inventory holding cost = 1000*25 = 25000

Stockout cost = 560*70 = 39200

Overtime cost = 840*55 = 46200

Total overall cost excluding normal time labour cost = Inventory holding cost + Stockout cost + Overtime cost

= 25000+39200+46200 = 110400