January February March April May June

Demand Forecast 500 600 650 800 900 800

Number of Working Days 22 19 21 21 22 20

Costs

Materials $100.00 /unit

Inventory holding cost $10.00 /unit/month
Marginal cost of stockout $20.00 /unit/month
Marginal cost of subcontracting $100.00 /unit ($200 subcontracting cost less $100 material savings)
Hiring and training cost $50.00 /worker
Layoff cost $100.00 /worker
Labor hours required 4 /unit
Straight-line cost (first eight hours each day) $12.50 /hour
Overtime cost (time and a half) $18.75 /hour

Inventory
Beginning Inventory 200 units
Safety Stock Required 0% of month demand

Aggregate Production Planning Requirements

 January February March April May June
Beginning Inventory 200 0 0 0 0 0
Demand Forecast 500 600 650 800 900 800
Safety Stock (.25 x Demand Forecast) 0 0 0 0 0 0
Production Requirement (Demand Forecast + Safety
300 600 650 800 900 800
Stock - Beginning Inventory)
Ending Inventory (Beginning Inventory + Production
0 0 0 0 0 0
Requirement - Demand Forecast)

Production Plan 1: Exact Production; Vary Workforce

January February March April May June
Production Requirement 300 600 650 800 900 800
Production Hours Required (Production Requirement
1,200 2,400 2,600 3,200 3,600 3,200
x 4 Hr./Unit)
Working Days per Month 22 19 21 21 22 20
Hours per Month per Worker (Working Days x 8
176 152 168 168 176 160
Hrs/Day)
Workers Required (Production Hours Required / Hours
7 16 15 19 20 20
per Month per Worker)
New Workers Hired (Assuming opening workforce
0 9 0 4 1 0
equal to first month's requirement of 7 workers.)
Hiring Cost (new Workers Hired x $50) $0 $450 $0 $200 $50 $0
Workers Laid Off 0 0 1 0 0 0
Layoff Cost (Workers Laid Off x $100) $0 $0 $100 $0 $0 $0
Straight Time Cost (Production Hours Required x
$15,000 $30,000 $32,500 $40,000 $45,000 $40,000
$12.50)
Total Cost

Production Plan 2: Constant Workforce; Vary Inventory and Stockout

January February March April May June
Beginning Inventory 200 140 -80 -310 -690 -1150
Working Days per Month 22 19 21 21 22 20
Production Hours Available (Working Days per Month
1,760 1,520 1,680 1,680 1,760 1,600
x 8 Hr./Day x 10 Workers)*
Actual Production (Production Hours Available / 4
440 380 420 420 440 400
Hr./Unit)
Demand Forecast 500 600 650 800 900 800
Ending Inventory (Beginning Inventory + Actual
140 -80 -310 -690 -1150 -1550
Production - Demand Forecast)
Shortage Cost (Units Short x $20) $0 $1,600 $6,200 $13,800 $23,000 $31,000
Safety Stock 0 0 0 0 0 0
Units Excess (Ending Inventory - Safety Stock) Only if
140 0 0 0 0 0
positive amount.
Inventory Cost (Units Excess x $10) $1,400 $0 $0 $0 $0 $0
Straight Time Cost (Production Hours Available x
$22,000 $19,000 $21,000 $21,000 $22,000 $20,000
$12.50)
*Assume a constant workforce of 10. Total Cost
 Production Plan 3: Constant Workforce; Subcontract
January February March April May June
Production Requirement 300 460 650 800 900 800
Working Day per Month 22 19 21 21 22 20
Production Hours Available (Working Day x 8
1,760 1,520 1,680 1,680 1,760 1,600
Hrs./Day x 10 Workers)*
Actual Production (Production Hours Available / 4 hr.
440 380 420 420 440 400
per Unit)
Units Subcontracted (Production Requirement - Actual
0 80 230 380 460 400
Production)
Subcontracting Cost (Units Subcontracted x $100) $0 $8,000 $23,000 $38,000 $46,000 $40,000
Straight Time Cost (Production Hours Available x
$22,000 $19,000 $21,000 $21,000 $22,000 $20,000
$12.50)
*Assume a constant workforce of 10. Total Cost

Summary
Sub- Straight Excess
Plan Description Hiring Layoff
contract Time
Shortage
Inventory
a. Exact Production; vary workforce $700 $100 $202,500
b. Constant workforce; vary inventory and $125,000 $75,600 $1,400
shortages
c. Constant workforce; subcontract $154,000 $125,000
 Totals
4,250
125

100 material savings)

 Total

$700

$100
$202,500
$203,300

Total

$75,600

$1,400
$125,000
$202,000
 Total

$155,000
$125,000
$280,000

Total Cost

$203,300
$202,000
$279,000