Amtrak Bus Lines is proud of its six-week bus driver training program that it conducts for all new Amtrak drivers. As long as the class size remains less than or equal to 35, a six-week training program costs Amtrak $22,000 for instructors and equipment.
The Amtrak training program must provide the company with approximately five new drivers per month. After completing the training program, new drivers are paid $1,600 per month but do not work until a full time driver position is available.
Amtrak views the $1,600 per month paid to each idle new driver as a holding cost necessary to maintain a supply of newly trained drivers available for immediate service.
(a) What is Amtrak’s annual demand for new drivers?
(b) What is Amtrak’s ordering cost?
(c) What is Amtrak’s holding cost per year for one new driver?
(d) Viewing new drivers as inventory-type units, how large should the training classes be to minimize Amtrak’s total annual training and new driver idle-time costs?
(e) How many training classes should the company hold each year?
What is the total annual cost associated with your recommendation.