Beginning workforce 40 workers

Working hours 36 h/week 144 h/month

Beginning inventory 1000
Production rate 2 products/working hour
Overtime capacity = half of regular production'
Subcontract capacity = regular production
Hiring cost 1500
Firing cost 4000
Inventory carrying cost 5 per unit per month
Regular production cost 20 per unit
Overtime production cost 25 per unit
Subcontract production cost 35 per unit

a/ Keep workforce at 40 workers, support the production with

necessary overtime or subcontract
Regular capacity = Workforce * Working hours / Production rate
11520 units
Overtime capacity = 1/2 regular capacity
5760 units
Subcontract capacity = regular capacity
11520 units

Overtime production cost < Subcontract production cost

=> Prefer overtime to subcontract

b/ Using chase strategy by hiring and firing workers

a/ Month 1 2 3 4 5 6
Demand 4500 12000 32000 8000 9000 18500
Starting inventory 1000 8020 7540 0 3520 6040
Production requirement 3500 3980 24460 8000 5480 12460
Regular capacity (units) 11520 11520 11520 11520 11520 11520
Overtime 5760 940
Subcontract 7180
Ending inventory 8020 7540 0 3520 6040 0
Regular cost 230400 230400 230400 230400 230400 230400
Overtime cost 144000 23500
Subcontract cost 251300
Inventory cost use ending inventory 40100 37700 0 17600 30200 0

Total regular cost 1612800

Total overtime cost 311500
Total subcontract cost 486500
Total inventory cost 125600
Total cost 2536400

Chase demand Month 1 2 3 4 5 6

Starting inventory 1000
Demand forcast 4500 12000 32000 8000 9000 18500
Production requirement 3500 12000 32000 8000 9000 18500
Hours needed 1750 6000 16000 4000 4500 9250
Workers needed 40 13 42 112 28 32 65
Workers hired 0 29 70 0 4 33
Workers laid of 27 0 0 84 0 0
Labor cost 70000 240000 640000 160000 180000 370000
Hiring cost 0 43500 105000 0 6000 49500
Firing cost 108000 0 0 336000 0 0

Total labor cost 1110000

Total hiring cost 148500
Total firing cost 444000
Total cost 1702500
 7
24000
0
24000
11520
5760
6720
0
230400
144000
235200
0

24000
24000
12000
84
19
0
480000
28500
0
Chase demand Quarter 1 2 3 4
Starting inventory
Demand forcast 70000 100000 50000 150000
Production requirement 70000 100000 50000 150000
Workers needed 50 56 80 40 120
Workers hired 6 24 0 80
Workers laid of 0 0 40 0
Labor cost 1400000 2000000 1000000 3000000
Holding cost
Hiring cost 1200 4800 0 16000
Firing cost 0 0 20000 0

Total labor cost 7400000

Total inventory cost 0
Total hiring cost 22000
Total firing cost 20000
Total cost 7442000

b Quarter 1 2 3 4
Starting inventory 0 0 0 50000
Demand forcast 70000 100000 50000 150000
Production requirement 70000 100000 100000 100000
Workers needed 50 56 80 80 80
Workers hired 6 24 0 0
Workers laid of 0 0 0 0
Ending inventory 0 0 50000 0
Labor cost 1400000 2000000 2000000 2000000
Holding cost 0 0 50000 0
Hiring cost 1200 4800 0 0
Firing cost 0 0 0 0

Total labor cost 7400000

Total inventory cost 50000
Total hiring cost 6000
Total firing cost 0
Total cost 7456000
Work 40 h/week
Beginning workforce 50
Production per employer 1250 units/quarter
Hiring cost 200
Laid of cost 500
Carrying cost 1 $/units/quarter
Regular production cost 20 $/units
NO OVERTIME AND SUBCONTRACT
Chase demand Quarter 1 2 3 4
Starting inventory
Demand forcast 70000 100000 50000 150000
Production requirement 70000 100000 50000 150000
Workers needed 40 56 80 40 120
Workers hired 16 24 0 80
Workers laid of 0 0 40 0
Labor cost 700000 1000000 500000 1500000
Holding cost
Hiring cost 8000 12000 0 40000
Firing cost 0 0 20000 0

Total labor cost 3700000

Total inventory cost 0
Total hiring cost 60000
Total firing cost 20000
Total cost 3780000

b Quarter 1 2 3 4
Starting inventory 0 0 0 50000
Demand forcast 70000 100000 50000 150000
Production requirement 70000 100000 100000 100000
Workers needed 40 56 80 80 80
Workers hired 16 24 0 0
Workers laid of 0 0 0 0
Ending inventory 0 0 50000 0
Labor cost 700000 1000000 1000000 1000000
Holding cost 0 0 50000 0
Hiring cost 8000 12000 0 0
Firing cost 0 0 0 0

Total labor cost 3700000

Total inventory cost 50000
Total hiring cost 20000
Total firing cost 0
Total cost 3770000
Work 40 h/week
Beginning workforce 40
Production per employer 1250 units/quarter
Hiring cost 500
Laid of cost 500
Carrying cost 1 $/units/quarter
Regular production cost 10 $/units
NO OVERTIME AND SUBCONTRACT
Inventory holding cost/unit/month 35 Chase, hiring and laid of Month
Hiring and training cost/worker 1000 Demand
Layof cost/worker 2000 Workforce requirement 15
Labor hours required/month 160 hr No of hiring employment
Regular time cost/hour 2 Cost of hiring employment
Over time cost/hour 5 No of laid of employment
Marginal subcontracting cost/unit 70 Cost of laid of employment
Initial workforce size 15 workers Regular labor cost
Individual worker output 10 units Total cost 42680
Time to produce one unit 16 hr
Over time cost/unit 80 100 units/month, OT Month
Regular time cost/unit 32 Demand
Production
Workers needed 15
Workers hired
Workes laid of
Overtime production
Hiring cost
Firing cost
Overtime cost
Regular labor cost
Total cost 40400

100 units/month, outsource Month

Demand
Production
Workers needed 15
Workers hired
Workes laid of
Subcontract
Hiring cost
Firing cost
Subcontract cost
Regular labor cost
Total cost 39000

Conclusion: Option 3 is the best solution since its total cost is s

 Jan Feb Mar Apr May Jun
100 110 100 120 150 160
10 11 10 12 15 16
0 1 0 2 3 1
0 1000 0 2000 3000 1000
5 0 1 0 0 0
10000 0 2000 0 0 0
3200 3520 3200 3840 4800 5120

Jan Feb Mar Apr May Jun

100 110 100 120 150 160
100 100 100 100 100 100
10 10 10 10 10 10
0 0 0 0 0 0
5 0 0 0 0 0
0 10 0 20 50 60
0 0 0 0 0 0
10000 0 0 0 0 0
0 800 0 1600 4000 4800
3200 3200 3200 3200 3200 3200

Jan Feb Mar Apr May Jun

100 110 100 120 150 160
100 100 100 100 100 100
10 10 10 10 10 10
0 0 0 0 0 0
5 0 0 0 0 0
0 10 0 20 50 60
0 0 0 0 0 0
10000 0 0 0 0 0
0 700 0 1400 3500 4200
3200 3200 3200 3200 3200 3200

best solution since its total cost is smallest.

Regular time 2 $/skateboard Back orders Period 1 2
Overtime 3 $/skateboard Forecast 200 200
Subcontract 6 $/skateboard Production rate 300 300
Inventory 1 $/skateboard/period Beginning inventory 0 100
Back orders 5 $/skateboard/period Ending inventory 100 200
Initial workforce 15 workers Back orders 0 0
Production per worker 20 units/worker/period Labor cost 600 600
Inventory cost 100 200
Back orders cost 0 0
Total cost 4700
 3 4 5 6
300 400 500 200
300 300 300 300
200 200 100 0
200 100 0 0
0 0 100 0
600 600 600 600
200 100 0 0
0 0 500 0
 CONSTANT WORKFORE, safety stock Period Jan Feb Mar Apr
Demand 1800 1500 1100 900
Work day 22 19 21 21
Work hours No of workers*h/day*days/month 7040 6080 6720 6720
Actual production Work hours/ (h/unit) 1408 1216 1344 1344
Beginning inventory 400 8 0 0
Begin inv. + Act. Pro - Demand -
Ending inventory Shortage of previous period 8 0 0 412
Safety stock 25% * Demand 450 375 275 225
Excess inventory Ending inv. - Beginning inv. 0 0 0 187
Demand + Shortage of previous
Shortage period - Begin inv. - Act. Pro 0 276 32 0
Holding cost Excess * holding cost/unit 0 0 0 280.5
Shortage cost Shortage * shortage cost/unit 0 1380 160 0
Labor cost Work hours * $/h RT 28160 24320 26880 26880
Total cost 28160 25700 27040 27160.5
May Jun No of workers 40
1100 1600 Worker works 8 h/day
22 20 Labor 5 h/unit
7040 6400 4 $/h RT
1408 1280 6 $/h OT
412 720 Safety stock 25% Demand

720 400 Holding cost 1.5 $/unit/mo

275 400 Stockout cost 5 $/unit/mo
445 0

0 0
667.5 0
0 0
28160 25600
28827.5 25600 162488