CHAPTER 4

Solution
1. ELM COMPANY
Completed Table

Elm Co. Sales and Operations Planning Spreadsheet

Sales
Forecast
Actual
Diff: Month
Cumulative

(in Million $)
(in units)
(in units)

History
October
0.80
800
826
26

Operations
Plan

(in units)
(in # employees)
Number Working Days/Mo.
Actual
(in units)
Diff: Month
Cumulative

Inventory
Plan

(in units)
(in 000 $)

Actual
(in units)
Days of Supply

November
0.85
850
851
1
27

December
0.90
900
949
49
76

800
6
23
798
-2
-2

800
8
19
802
+2
0

800
8
19
800
0
0

150
105

100
70

0
0

122

73
1.6

-76
-1.5

3.4

4-1

2. TRAPPER LAWN EQUIPMENT COMPANY

Revised plan:
Trapper Lawn Equipment Company Sales and Op's Planning Spreadsheet - Riding Mowers
Product Group (Make-to-Stock)

Sales
Forecast
Actual
Diff: Month
Cumulative
Operations

(M$)
(units)
(units)

Plan

(units)
(# employ)
# Work Days/Mo.
Actual
(units)
Diff: Month
Cumulative

Inventory
Plan

History
Oct
12.50
5000
4384
-616

Plan
Nov
10.00
4000
3626
-374
-990

Dec
16.25
6500
6065
-435
-1425

Jan
5.00
2000

Feb
5.00
2000

Mar
7.50
3000

4000
70
19
4091
91
740
Target DOS Inv:

6500
114
19
7279
779
1519
5

0
0
20

556
9
21

3250
47
23

500

500

750

5000
72
23
5649
649

(units)
(000$)

1270
2223

1270
2223

1270
2223

1944
3402

500
875

750
1313

Actual
(units)
Days of Supply

2265
10

2730
15

3944
13

19

a) Target inventory levels for the three months based on 5 days of supply:
January = 5 x 2000 / 20 = 500; February = 5 x 2000 / 20 = 500;
March = 5 x 3000 / 20 = 750
Planned build for each month required to achieve the target accounting for the forecast demand
and the inventory in the previous period:
Build plan = forecast demand + target inventory previous month inventory
January planned build is zero since 3944 units remain in inventory at the end of December.
February planed build = 2000 + 500 1944 = 556
March planned build = 3000 +750 500 = 3250

4-2

b) Qualitative factors:
The plan indicates no production in January and very light production in February.
This could be implemented as a plant shutdown that may be very disruptive to work force
moral and cause an employee retention problem.
It can also have quality and productivity issues as more problems are likely at shutdown
and start-up. Key skills are not practiced.
A better alternative might be to maintain some production below customer demand and
gradually reduce inventory levels.
Consider going to a 4 day or other form of shorten workweek. Restrict the use of
overtime. Consider the use of a planned shutdown during the summer vacation season or
force the use of accrued vacation time to reduce the number of workers available.
3. TRAPPER LAWN EQUIPMENT COMPANY REVISITED
a) The average forecast error is calculated as the difference between the total forecast and actual
demand divided by the total forecast. In this case, since the 3 month cumulative error is given in
the table:
Forecast error % = -1425 / (5000 + 4000 + 6500) x 100 = -9.2%
Reducing each of the forecast values by 9.2% for January to June yields the projected values
units sales and resulting inventory levels and days of supply shown in the table below.

4-3

Trapper Lawn Equipment Company Sales and Operations Planning Spreadsheet

Riding Mowers Product Group (Make-to-Stock)
History
Plan
Sales
Oct
Nov
Dec
Jan
Forecast
(M$)
12.50
10.00
16.25
5.00
(units)
5000
4000
6500
2000
Actual / Projected
1816
(units)
4384
3626
6065
Diff: Month
-616
-374
-435
Cumulative
-990
-1425
Avg % Error
-9.2%
Operations
Plan
(units)
5000
4000
6500
2000
(# employ)
72
70
114
33
# Work Days/Mo.
23
19
19
20
Actual
(units)
5649
4091
7279
Diff: Month
649
91
779
Cumulative
740
1519
Inventory
Plan / Projected

Actual
Days of Supply /

(units)
(000$)

Target DOS Inv:

1270
1270
2223
2223

(units)
Projected

2265
10

2730
15

Feb
5.00
2000
1816

Mar
7.50
3000
2724

Apr
10.00
4000
3632

May
12.50
5000
4540

Jun
17.50
7000
6356

2000
32
21

3000
43
23

4000
67
20

5000
76
22

7000
106
22

5
1270
2223

500
4128
7224

500
4312
7546

750
4588
8028

1000
4956
8672

1250
5416
9476

1750
6060
10602

3944
13

46

50

39

27

26

21

b) Options for consideration

Change the forecast. This would require the marketing and production mangers coming to
agreement on what the new forecast should be.
Adjust the production plan to compensate for the fact that the forecast seems to have a relatively
consistent negative bias. This option has little risk in the near term since inventory levels are
relatively high.

4-4

4. SKI & SEA, INC.

a. Level Plan
Aggregating the forecast
Quarter
Jet Skis
Snowmobiles
Total

1
10,000
9,000
19,000

2
15,000
7,000
22,000

3
16,000
19,000
35,000

4
3,000
10,000
13,000

Total
44,000
45,000
89,000

Determining the production rate:

(Total forecast - beginning inventory) / 4 quarters
(89,000 - 1,000) / 4 = 22,000 units per quarter
The Plan and its costs:
Quarter
1
2
3
Demand
19,000 22,000 35,000
Production
22,000 22,000 22,000
Beginning Inventory
1,000
4,000
4,000
Ending Inventory
4,000
4,000
0
Average Inventory*
2,500
4,000
2,000
Backorders
0
0
9,000
*(beginning inventory + ending inventory) / 2
Costs
Regular time
Inventory
Backorders
Total

$15.00
$ 3.00
$24.00

Consequences:
Low levels of inventory
Substantial back order in quarter 3
b. Cumulative Chart

4-5

88,000
8,500
9,000

4
13,000
22,000
0
0
0
0

Total
= $ 1,320,000
=$
25,500
= $ 216,000
$ 1,561,500

Total
89,000
88,000
8500
9000

100,000

Cumulative Forecast
80,000

Cumulative Output

Cum. production and demand in units

60,000

40,000

20,000

Quarter 1

Quarter 2

Quarter 3

Quarters

c. Inventory Space = 20 cubic feet x 4000 = 80,000 cubic feet

d. Investment = $ 600.00 x 4,000 = $ 2,400,000

4-6

Quarter 4

5. IVAR JORGENSON
a. Overtime
Quarter
1
2
3
4
Total
Jet Skis
10,000 15,000 16,000
3,000
44,000
Snowmobiles
11,000
7,000 19,000 10,000
47,000
Total
21,000 22,000 35,000 13,000
91,000
Production rate = (91,000 - 1,000) / 4 = 22,500 units per quarter
Quarter

1
2
3
Demand
21,000 22,000 35,000
Overtime
500
500
500
Regular
22,000 22,000 22,000
Output
22,500 22,500 22,500
Beginning Inventory
1,000
2,500
3,000
Ending Inventory
2,500
3,000
0
Average Inventory*
1,750
2,750
1,500
Backorders
0
0
9,500
*(beginning inventory + ending inventory) / 2
Costs
Regular time
Overtime
Inventory
Backorders
Total
b.

c.

$15.00
$22.50
$ 3.00
$24.00

Subcontracting
Subcontracting Cost
Overtime Cost
Net Increase/(Decrease)
New Total Cost

Hiring a New Worker

Hiring
Regular
Overtime Cost
Net Increase/Decrease
New Total Cost

88,000
2,000
6,000
9,500

$ 30.00
$ 22.50

$ 300.00
$ 15.00
22.5

4-7

4
13,000
500
22,000
22,500
0
0
0
0

91,000
2,000
88,000
90,000
6000
9500

Total
= $ 1,320,000
=$
45,000
=$
18,000
= $ 228,000
$ 1,611,000

2,000
2,000

1
2,000
2000

=$
60,000
=$
45,000
$
15,000
$ 1,626,000

=$
300
=$
30,000
=$
45,000
$ (14,700)
$ 1,596,300

10. JOAN'S JOYOUS NATURE FOOD

a. Joan should produce 135 units each month. [(120 + 160 - 10)/2 = 135]
600

500

Cumulative Output

Cum. production and demand in units

400

300

Cumulative Demand

200

100

Month 1

Month 2

Month 3

Month 4

Months

b. The ending inventory for month 4 is 180 units. [(10 + (4 135) - 370) = 180]
c. Joan should produce 90 units each month.
[(120 + 160 + 20 + 70 - 10) / 4 = 90]

d.
Month:
1
2
Beginning Inventory
10
0
Production
90
90
Demand
120
160
Ending inventory
0
0
Average inventory
5
0
Carrying cost
$25
$0
Backorders (cumulative)
20
90
Backorder cost
$160
$720
Total Inventory Cost = $5 5 = $25
Total Backorder Cost = $8 130 = $1040

4-8

3
0
90
20
0
0
$0
20
$160

4
0
90
70
0
0
$0
0
$0

4-9

11. ORO DEL MAR CO.

a.
400

Cumulative Output

300

Cum. demand and prod. in 1,000 pounds

200

Cumulative Demand

100

January

February

March

Months

b. A production rate of 100 units per month is required in order to avoid backorders and result
in no ending inventory in March. [(100 + 300 - 100) / 3]

4-10

18. GENERAL AVIONICS AGAIN

Chase Sales Plan
Quarter
2
3
4

Ending
Overtime
Sales
Production
Workforce
Inventory
Production
8,000
7,000
70
1,000
6,400
6,400
64
1,000
1,600
1,600
16
1,000
16,000
15,000
150
3,000

Cost Item
Inventory Carrying Cost (3000 x $2)
Overtime Cost
Firing Cost (54 x $400)
Hiring Cost (20 x $200)
Regular Payroll Cost (150 x $1,200)
Total Cost

0
0
0
0

Cost
$ 6,000
0
21,600
4,000
180,000
$211,600

Level Production Plan

Quarter
2
3
4

Sales
8,000
6,400
1,600
16,000

Production
7,000
6,400
5, 000
18,400

Workforce
50
50
50
150

Ending
Inventory
1,000
1,000
3,400
5,400

Cost Item
Inventory Carrying Cost ($2 x 5,400)
Overtime Cost ($14* x 3,400)
Firing Cost
Hiring Cost
Regular Payroll Cost(150 x $1,200)
Total Cost
*$14 = $12 for regular + $2 overtime premium

4-11

Cost
$ 10,800
47,600
0
0
180,000
$238,400

Overtime
Production
2,000
1,400
0
3,400