The company will maintain a workforce capable of producing

Question

The Austin, Texas plant of Computer Products produces disk units for personal and small business computers. Gerald Knox, the plant's production planning director, is looking over next year's sales forecasts for these products and will be developing an aggregate capacity plan for the plant. The quarterly sales forecasts for the disk units are as follows:

1^st Quarter

2^nd Quarter

3^rd Quarter

4^th Quarter

2,360

1,980

2,340

1,800

Ample machine capacity exists to produce the forecast. Each disk unit takes an average of 20 labor-hours. In addition, you have collected the following information:

a. Inventory carrying cost is $100 per disk unit per quarter. The cost is applied to all units in inventory at the end of a quarter.

b. The plant works the same number of days in each quarter, 12 five-day weeks, 6 hours per day.

c. Beginning inventory is 200 disk units. These will be used to help satisfy the 1^st Quarter demand.

d. In a backlog situation, the customer will wait for his order to be filled but will expect a price reduction each quarter he waits. The backlog costs are $300 per disk for the first quarter the customer waits, $700 for the second quarter the customer waits, and $900 for the third quarter the customer waits. In filling orders, backlogged items will always be filled before current quarter items,

e. The cost of hiring a worker is $800 while the cost of laying off a worker is $950.

f. The straight time labor rate is $20 per hour for the first quarter and increases to $22 per hour in the third quarter.

g. Overtime work is paid at time and a half (150%) of the straight time work.

h. Outsourcing (contract work) is paid at the rate of $475 per disk unit for the labor and Computer Products provides the material.

i. Demand during the fourth quarter of the prior year was 1,800 units and was fulfilled using a workforce working at full utilization. The demand for the first quarter of the next year (year following the year you are analyzing) is projected to be at the 1,980 unit level.

Compare the following two sales and operations plans.

i) The company will maintain a workforce capable of producing the demand during the fourth quarter of last year. If there are more workers in a quarter than required to produce the demand for that quarter, only the units required will be produced in that quarter and there will be underutilization. If demand is greater in a quarter than can be produced by the available workforce using straight time, the excess units will be outsourced. What is the total cost of this option, excluding the material cost?

ii) The company will establish in quarter one and then maintain a workforce capable of producing 2,160 units in a quarter. If there are more workers in a quarter than required to produce the demand for that quarter, only the units required will be produced in that quarter and there will be underutilization. If demand is greater in a quarter than can be produced by the available workforce using straight time labor, the excess units will be backlogged until the next quarter when they will be produced using regular time labor and then overtime if there are not sufficient workers. What is the total cost of this option, excluding the material cost?