50.1K

Verified Solution

Link Copied!

During the next Six months, the BestOption Company must meet the following demands) for pairs of hand-craft shoes: 3000 in month 1, 4000 in month 2, 2000 in month 3, and 2500 in month 4, 3000 in month 5 and 3200 in month 6. At the beginning of the first month, 500 pairs of shoes are on hand, and BestOption currently has 60 workers. A worker is paid $10 regular wage per workhour and works up to 160 hours per month at regular wage. The labor cost in production is paid in hours that workers work. Each worker can work overtime when exceeding 160 hours in a month and receives $15 per hour for overtime. A worker can work up to 20 hours of overtime per month. It takes 4 hours of labor to produce a pair of shoes. At the beginning of each month, workers can be hired or fired. Each hired worker costs $1600, and each fired worker costs $2000. At the end of each month, a holding cost of $3 per pair of shoes left in inventory is incurred. Backorder cost is $15 per pair per month. The firm can also use a subcontractor to make up some production. The subcontracting cost is $75 per pair which has a maximal capacity of 500 pairs per month.

Q1. (W9) Use a stable production strategy with 60 workers. To fulfill the demand, BestOption follows the following order: (1) inventory from the previous months, (2) overtime, (3) stockout or subcontracting depending on which one is cheaper. Note that you cannot have stockout at the end of month 6, thus, you will need to use subcontracting to make up the shortfall before you see that happens. You should consider building shoes inventory if you need that is the cheapest way to satisfy demand in later months. Please calculate the total cost of this aggregate production plan.

Q2. (W9) Please use a chase strategy to hire the minimal # of workers that is needed to produce enough quality to satisfy the demand. In this plan, you use no overtime, stockout or subcontracting. You may use initial inventory in each month to satisfy the demand. Please calculate the total cost of this aggregate production plan.

Q3. (W9) BestOption decides they will maintain a stable workforce for their total demand of 17700 units in the following 6 months. Since17700*4 (hr/unit)/(160 hr/mo *6 mo) = 73.75, they will hire 74 workers every months. BestOption will choose to produce up to its maximum labor hour and build inventory when its necessary. The ending inventory at month 6 is set to have 0 units. Stockout and Inventory are used in this option and no overtime or subcontracting will be used. Please calculate the total cost of this aggregate production plan.

Q4. (W9) Which answers in Q1, Q2 and Q3 is the best plan? Please provide some cost analysis to justify why that is the best option. Can you find any other production plan that can do better than the best of Q1, Q2, and Q3? If so, please show me your Excel solution in a separate tab.

Answer & Explanation Solved by verified expert

See Answer