Question: The Bango Toy Company produces several types of toys to seasonal demand. The forecast for the next six months in thousands of dollars is given below:
A regular employee can produce $10,000 worth of toys per month, and the company has 80 regular employees at the end of June. Regular-time employees are paid $3800 per month, including benefits. An employee on overtime produces at the same rate as on regular time but is paid at 150 percent of the regular pay. Up to 20 percent overtime can be used in any one month. A worker can be hired for $1000, and it costs $2000 to lay off an employee. Inventory carrying costs are 30 percent per year. The company wishes to end the year with 80 employees. Beginning inventory of toys is $900,000.
a. Calculate the cost of a chase strategy.
b. Calculate the cost of a level strategy.
c. Using the Excel template, simulate several other strategies.
d. Determine the effect on the chase strategy, in part a, of changing the hiring cost to $1500, $2000, and $2500. What do these changes suggest the relationship is between hiring cost and total cost?
e. Use the Excel template to study the effect of demand changes on the total cost of the chase strategy. Assume various percentage increases and decreases in demand (110 percent, 120 percent, 210 percent, 220 percent, etc.).