Chapter 13 problems 13.

3:
The president of Hill Enterprises, Terri Hill, projects the firms aggregate demand
requirements over the next 8 months as follows:
Her operations manager is considering a new plan, which begins in January with 200 units on
hand. Stockout cost of lost sales is $100 per unit. Inventory holding cost is $20 per unit per
month. Ignore any idle-time costs. The plan is called plan A.
Plan A: Vary the workforce level to execute a chase strategy by producing the quantity
demanded in the prior month. The December demand and rate of production are both 1,600
units per month. The cost of hiring additional workers is $5,000 per 100 units. The cost of
laying off workers is $7,500 per 100 units. Evaluate this plan.
Ans:
Stock on Hand 200 unit
Month
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug

Demand
1400
1600
1800
1800
2200
2200
1800
1400

Production
1600
1200
1600
1800
1800
2200
2200
1800
1400

Hire

Layoff

Cost

400

$30,000
$20,000
$10,000
$0
$20,000
$0
$30,000
$30,000
$140,000

400
200
400
400
400

Total cost for the plan A works out to be $140,000.

Chapter 13 problems 13.5:

Hill is now considering plan C. Beginning inventory, stockout costs, and holding costs are
provided in Problem 13.3:
a) Plan C: Keep a stable workforce by maintaining a constant production rate equal to the
average requirements and allow varying inventory levels.

Ans:
The average requirement is found by summing the total demand from January through
August, and dividing the result by 8 months to find 1,775 units per month.

Month
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug

Demand
1400
1600
1800
1800
2200
2200
1800
1400

Production
1775
1775
1775
1775
1775
1775
1775
1775

Ending Inv.
200
575
750
725
700
275
0
0
375

Stock-out

150
25

Cost
$11,500
$15,000
$14,500
$14,000
$5,500
$15,000
$2,500
$7,500
$85,500

Total cost for the plan is $85,500. We would recommend plan C over plan A.

b) Plot the demand with a graph that also shows average requirements. Conduct your analysis
for January through August.

We we can see that the demand from January till February is below the average requirement
and then from March till July the demand is above the the average requirement and then in
the month of August, the demand goes below the average requirement.
Chapter 13 problems 13.9:
Mary Rhodes, operations manager 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, which performs at a current production level of 1,300 units per
month. 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.
Ans:

Plan A

Month
June
July
August
Septem
ber
October
Novemb
er
Decemb
er

Dema
nd

Product
ion
1000
1000
1000
1200
1000

End of
period
Inventory

Sub
Contrac
t Units

Invent
ory
Cost

Subcontr
act Cost

0
0

0
200

0
0

0
12000

1400
1800

1000
1000

0
0

400
800

0
0

24000
48000

1800

1000

800

48000

1600

1000

600

36000

Total
Cost

$ 168000

Plan B

Month
June
July
August
Septem
ber
October
Novemb
er
Decemb
er

Dema
nd

Product
ion
Hire
1300
1000
1000
1200
1200

0
200

300
0

0
6000

18000
0

1400
1800

1400
1800

200
400

0
0

6000
12000

0
0

1800

1800

1600

1600

200

12000

24000

30000

Total
Cost

Total Cost in Plan B = 30000+24000 = $ 54000

b) Which plan is best and why?

Hire
Cost

Layof

Layof
Cost

Ans:
Comparing both the plan, we find that Plan B is better.

Chapter 13 problems 13.21:

Forrester and Cohen is a small accounting firm, managed by Joseph Cohen since the
retirement in December of his partner Brad Forrester. Cohen and his 3 CPAs can together bill
640 hours per month. When Cohen or another accountant bills more than 160 hours per
month, he or she gets an additional overtime pay of $62.50 for each of the extra hours: This
is above and beyond the $5,000 salary each draws during the month. (Cohen draws the same
base pay as his employees.) Cohen strongly discourages any CPA from working (billing)
more than 240 hours in any given month. The demand for billable hours for the firm over the
next 6 months is estimated below:
Month
Jan
Feb
Mar
Apr
May
Jun

Estimate of Billable
Hours
600
500
1000
1200
650
590

Cohen has an agreement with Forrester, his former partner, to help out during the busy tax
season, if needed, for an hourly fee of $125. Cohen will not even consider laying off one of
his colleagues in the case of a slow economy. He could, however, hire another CPA at the
same salary, as business dictates.
Refer to the CPA firm in Problem 13.20. In planning for next year, Cohen estimates that
billable hours will increase by 10% in each of the 6 months. He therefore proceeds to hire a
fifth CPA. The same regular time, overtime, and outside consultant (i.e., Forrester) costs still
apply.
a) Develop the new aggregate plan and compute its costs.
Ans:
Cost with the 1st plan of 4 CPAs and using Forrester as outside consultant (Previous
aggregate plan)

Month

Estimate
of Billable
Hours

Capaci
ty

Extra
Hours

Regular
Cost

Overti
me

Forrest
er

Total
Cost

Jan
Feb
Mar
Apr
May
Jun

600
500
1000
1200
650
590

640
640
640
640
640
640

-40
-140
360
560
10
-50

20000
20000
20000
20000
20000
20000

0
0
20000
20000
625
0
Total
Cost

0
0
5000
30000
0
0

20000
20000
45000
70000
20625
20000
1956
25

Cost with the 2nd plan of 5 CPAs and using Forrester as outside consultant with
increased billable hours (New aggregate plan)

Month
Jan
Feb
Mar
Apr
May
Jun

Estimate
of Billable
Capaci Extra
Regular
Overti
Forrest Total
Hours
ty
Hours
Cost
me
er
Cost
660
800
-140
25000
0
0 25000
550
800
-250
25000
0
0 25000
1100
800
300
25000
18750
0 43750
1320
800
520
25000
25000
15000 65000
715
800
-85
25000
0
0 25000
649
800
-151
25000
0
0 25000
Total
2087
Cost
50

b) Comment on the staffing level with five accountants. Was it a good decision to hire the
additional accountant?
Ans:
With five accountants, the total cost is higher compared to the 1st plan of 4 CPAs. So, I dont
think that it was a good decision to hire the additional accountant.