Can someone please help? I would like to check my formulas and answers. I have P
ID: 362395 • Letter: C
Question
Can someone please help? I would like to check my formulas and answers. I have Plan A as 168,000 and Plan B as 54,000. thank you
13.9
The S&OP team at Kansas Furniture, has received the following estimates of demand requirements:
July
Aug.
Sept.
Oct.
Nov.
Dec.
1,000
1,200
1,400
1,800
1,800
1,600
a)Assuming stockout costs for lost sales of $100 per unit, inventory carrying costs of $25 per unit per month, and zero beginning and ending inventory, evaluate these two plans on an incremental cost basis:
Plan A: Produce at a steady rate (equal to minimum requirements) of 1,000 units per month and subcontract additional units at a $60 per unit premium cost.
Plan B: Vary the workforce, to produce the prior month’s demand. The firm produced 1,300 units in June. The cost of hiring additional workers is $3,000 per 100 units produced. The cost of layoffs is $6,000 per 100 units cut back.
Note: Both hiring and layoff costs are incurred in the month of the change, (i.e. going from production of 1,300 in July to 1,000 in August requires a layoff (and related costs) of 300 units in August, just as going from production of 1,000 in August to 1,200 in September requires hiring (and related costs) of 200 units in September).
b)Which plan is best and why?
July
Aug.
Sept.
Oct.
Nov.
Dec.
1,000
1,200
1,400
1,800
1,800
1,600
Explanation / Answer
Plan A
Month
Demand
Production
End of period Inventory
Sub Contract Units
Inventory Cost
Subcontract Cost
June
1000
July
1000
1000
0
0
0
0
August
1200
1000
0
200
0
12000
September
1400
1000
0
400
0
24000
October
1800
1000
0
800
0
48000
November
1800
1000
0
800
0
48000
December
1600
1000
0
600
0
36000
Total Cost
$ 168000
Plan B
Month
Demand
Production
Hire
Layoff
Hire Cost
Layoff Cost
June
1300
July
1000
1000
0
300
0
18000
August
1200
1200
200
0
6000
0
September
1400
1400
200
0
6000
0
October
1800
1800
400
0
12000
0
November
1800
1800
0
0
0
0
December
1600
1600
0
200
0
12000
Total Cost
24000
30000
Total Cost in Plan B = 30000+24000 = $ 54000
b) Which plan is best and why?
Ans: In comparison to Plan A ,the better Plan is B due to total cost is less.
Plan A
Month
Demand
Production
End of period Inventory
Sub Contract Units
Inventory Cost
Subcontract Cost
June
1000
July
1000
1000
0
0
0
0
August
1200
1000
0
200
0
12000
September
1400
1000
0
400
0
24000
October
1800
1000
0
800
0
48000
November
1800
1000
0
800
0
48000
December
1600
1000
0
600
0
36000
Total Cost
$ 168000