The Austin, Texas plant of Computer Products produces disk unitsfor personal and small business computers. Gerald Knox, the plant’sproduction planning director, is looking over next year’s salesforecasts for these products and will be developing an aggregatecapacity plan for the plant. The quarterly sales forecasts for thedisk units are as follows:
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter |
2,610 | 2,520 | 2,520 | 2,700 |
Ample machine capacity exists to produce the forecast. Each diskunit takes an average of 20 labor-hours. In addition, you havecollected the following information:
- Inventory holding cost is $100 per disk unit per quarter. Theholding cost is based on the inventory at the end of thequarter.
- The plant works the same number of days in each quarter, 12five-day weeks, 6 hours per day.
- Beginning inventory is 90 (ninety) disk units and these will beused to meet the initial demand in the first quarter and there isno holding cost associated with these units.
- In a backlog situation, the customer will wait for his order tobe filled but will expect a price reduction each quarter he waits.The backlog costs are $300 per disk for the first quarter thecustomer waits, $700 for the second quarter the customer waits, and$900 for the third quarter the customer waits. In any quarter, ifthere is a backlog, this backlog will be filled before the demandfor that period is fille
- The cost of hiring a worker is $800 while the cost of layingoff a worker is $950.
- The straight time labor rate is $20 per hour for the firstquarter and increases to $22 per hour beginning in the thirdquarter.
- Overtime work is paid at time and a half (150%) of the straighttime work.
- Outsourcing (contract work) is paid at the rate of $480 perdisk unit for the labor and you provide the material.
- Demand is projected to increase this year. Demandduring the fourth quarter of the prior year was 2,340 units. Thedemand for the first quarter of the next year (year following theyear you are analyzing) is projected to be at the 2,700 unitlevel.
a) You want to maintain a work force capable of producing 2,520in a quarter outsourcing any disk units over this quantity. Excessunits produced in a quarter would be carried over to meet demand ina subsequent quarter. Any additional demand is met throughoutsourcing. All workers will be fully utilized each quarter. Inother words, there is no under utilization. What is the total costof this option, excluding the material cost? Be sure to include anyhiring and layoff costs.
b) The company will maintain a work force capable of producing2,430 units in a quarter. It will allow backlogs to occur until thefourth quarter when it will outsource all demand that cannot be metwith its own workforce. All workers will be fully utilized eachquarter. In other words, there is no under utilization. What is thetotal cost of this option, excluding the material cost? Be sure toinclude any hiring and layoff costs.
