Normally, both operations work eight hours per day, five days per week. The automatic operation produces at an average rate of forty units per hour. Any time that the process is operating, five employees who earn $12.50 per hour must be present. Work on products requiring manual operations is a little different. Each employee there earns an average of $16.00 per hour, and there are currently ten employees. Extra employees can be hired in that area, but the cost of advertising, interviewing, and so on is about $500 per employee hired. Any employees laid off receive one month's pay as compensation. Overtime work is paid at a 50 percent premium and is limited to two hours per day on weekdays and four hours on Saturday.
Bill Dixon is production manager for Farquhar. He is working on developing an aggregate plan for the coming year and has two major concerns. First, the company's relations with its employees have been good, but there is some talk of unionizing. Too many layoffs could lead to more than talk. Second, the cost of carrying inventory has been increasing. Custom-made products are not inventoried, but high-volume products are inventoried at an average cost of $1.50 per unit per month. Carrying cost is a major concern with 2,000 units now in stock.
Suppose you are Bill Dixon. Develop an aggregate plan that meets Farquhar's company objectives, and determine the total costs associated with that plan.
Tips:
1- (Manual production) Vary the workforce by hiring/layoffs. No over time
2- (Manual production) Do not vary the workforce, i.e. no hiring or layoffs, only 10 labor to be used. Use overtime at the mentioned rates to fulfill remaining demand.
3- (Automatic production) Use full capacity of machine to run throughout the months. Use inventory to fulfill the demand in the peak periods.
4- (Automatic production) Do not run machine at full capacity. Run according to the monthly demand. Fulfill demand in the peak periods through over time.