Aggregate Planning

1. The Acme Engineering Company provides bridge design services to road construction companies. These
projects are classified into three types of bridges: pedestrian, Class 1 vehicle traffic, and Class 2 vehicle
traffic. Acme is planning its work force for next year and estimates that for every sales dollar .0156
engineering design hours will be required. The forecast of next year's sales of bridge design is:

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Sales (Thousands of Dollars)

Type of Bridge 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------------------------------------------------------------------------------------------
Pedestrian $1,200 $1,500 $1,200 $1,000
Class 1 vehicle 2,700 2,500 3,000 2,500
Class 2 vehicle 5,500 6,000 5,000 5,000
======================================================================

If there are 2,000 hours per year for each engineer, compute the number of engineers needed for each
bridge type in each quarter and the total number of engineers needed in each quarter.

2. The Triple A Products Company produces three product lines: A1, A2, and A3. Triple A is now doing its
capacity planning for next year and wishes to develop an aggregate demand for its products. Billie Joe
Kennedy, forecasting analyst, has developed a regression equation for each of the products' quarterly sales
for next year:
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Product Quarterly Sales in Units
-------------------------------------------------------
A1 Y = 550 + 333X
A2 Y = 1,000 - 250X
A3 Y = 250 + 267X
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Y is quarterly sales in units and X is the quarter (1, 2, 3, 4). The number of machine-hours required in
the calendering operation, which is the bottleneck operation in the entire facility (this operation has the
least capacity among all the operations in the entire facility), for each of the products is:
======================================
Product Machine Hours per Product
-------------------------------------------------------
A1 .50
A2 1.00
A3 .30
======================================
a. Compute the quarterly sales in units for each of the three products.
b. Compute the number of machine-hours in the calendering operation required to produce each of the
products per quarter and all of the total aggregate demand (machine-hours) per quarter.

3. The Zapcom Computer Company manufactures small-business computers that are marketed nationally
through a distributor network. Zapcom is now making its marketing and manufacturing plans for the next
year, which are medium-range plans in its planning system. The company has developed these sales
forecasts and labor and machine standards for its products:
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════════════════════════════════════════════====
Labor Machine
Quarterly Sales (Units) Standard Standard
───────────────────────────────────────
(Labor (Machine
1st 2nd 3rd 4th Hours/ Hours/
Product Quarter Quarter Quarter Quarter Unit) Unit)
──────────────────────────────────────────────
1. Z305 13,000 19,500 15,400 23,500 7.95 5.77
2. Z205 6,500 8,700 7,200 10,000 6.56 4.10
3. Z105 12,500 23,500 16,500 25,000 3.22 2.55
4. Z1510 8,700 12,200 10,500 15,750 4.90 3.15
5. Z1210 4,500 6,000 4,900 7,000 3.11 2.10
6. Z620 11,500 14,700 12,800 16,500 2.60 1.50
7. Z520 10,500 14,000 11,500 17,500 2.20 1.21
8. ZROM 25,500 33,500 27,500 38,500 .56 .79
═══════════════════════════════════════════════════════════════════════════

a. Compute the labor-hours required for each quarter.

b. Compute the machine-hours required for each quarter.

4. The Boston plant of Computer Products Corporation (CPC) manufactures a line of resins that is shipped to
other CPC plants and other firms in the electronics and computer-manufacturing industries. Lynda
McDonald, production-planning manager at the plant, is planning the aggregate production capacity
required at the plant to produce next year's sales forecast that was just issued from CPC's corporate
headquarters in San Jose. The plant manufactures three lines of resin (Wopac, Ziptite, and Lockit), each line
with several variations but each one requiring the same amount of labor- and machine-hours to manufacture
one pound. For example, the only difference between Wopac 3599 and Wopac 3674 is in the ingredients
used for each. The same amount of production time is required by each.

═════════════════════════════════════════════════════════════════
Sales Forecast (Thousands of Tons)

Resin 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

─────────────────────────────────────────────────────────────────
Wopac 10.3 11.4 13.9 9.3
Ziptite 6.1 5.4 7.8 6.7
Lockit 3.0 1.4 4.2 5.7
═════════════════════════════════════════════════════════════════

Ample machine capacity exists to produce the forecast and each ton of resin requires 5 labor hours.

a. Compute the aggregate demand for resins in each quarter.

b. Compute the aggregate number of labor-hours in each quarter.
c. If each worker works 520 hours per quarter, how many workers will be required in each quarter?

5. In Problem 4 above, it costs $2,000 to hire a worker and $1,000 to lay off a worker, and inventory carrying
cost is $150 per ton of resin. (This means that if one ton of resin were held in inventory for a year, it would
cost $150 for finance charges, insurance, warehousing expense, etc.) CPC's Boston plant works the same

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 number of days in each quarter, 13 five-day weeks. Evaluate two aggregate plans for next year: (a)
matching demand and (b) level capacity with inventory. Which plan would you recommend? Why? Assume
that the pattern of quarterly demand repeats from year to year and that beginning inventory is zero.

6. The Austin, Texas, plant of Computer Products Corporation (CPC) produces printers and floppy disk units
for personal and small-business computers. Gerald Knox, the plant's production-planning director, is
looking over next year's sales forecasts for these products and will be developing an aggregate capacity plan
for the plant:

════════════════════════════════════════════════════════════════
Sales Forecasts (in Printers and Disk Units)
─────────────────────────────────────────────────────
Product 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
────────────────────────────────────────────────────────────────
─
Printer 1,000 1,200 1,400 1,200
Floppy
Disk unit 2,000 2,400 1,800 1,700
════════════════════════════════════════════════════════════════

Ample machine capacity exists to produce the forecast. Each printer takes an average of 20 labor-hours
and each floppy disk unit takes an average of 15 labor-hours.

a. Compute the aggregate number of labor-hours in each quarter.

b. If each worker works 520 hours per quarter, how many workers will be required at the Austin plant
in each quarter?

7. Blaze Advertising is a national agency that provides advertising services to mass-merchandising retailers.
The firm’s services fall into three categories—television, print media, and radio. Blaze is planning its
workforce for next year and estimates that for every sales dollar 0.01 hour of employee time will be
required. The forecast of next year’s sales for each category is:

Advertising Sales (thousands of dollars)

Category 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Television $4,200 $4,500 $5,200 $4,000
Print media 3,700 3,500 5,000 3,500
Radio 1,500 1,000 2,000 1,000

If there are 2,000 hours per year for each employee, compute the number of employees needed for each
advertising category in each quarter and the total number of employees needed in each quarter.

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8. The Rigid Strut Steel Company is trying to decide between two aggregate capacity plans, No. 1 and No. 2.
The number of workers per quarter and the average annual finished-goods inventory in thousands of pounds
for the two plans are shown below. If hiring costs are $1,200 per worker hired, layoff costs are $600 per
worker laid off, and inventory carrying cost is $.015 per pound per year, compute the annual hiring, layoff,
carrying, and total incremental costs for each plan. Which plan would you prefer? Why?

═════════════════════════════════════════════════════════════════
Aggregate Average Annual Inventory
Plan Quarter Workers Required (Thousands of Pounds)
─────────────────────────────────────────────────────────────────
No. 1 1 150 1,500
2 160
3 160
4 150
═════════════════════════════════════════════════════════════════
No. 2 1 155 2,950
2 155
3 155
4 155
═════════════════════════════════════════════════════════════════

9. In Problem 6, it costs $1,000 to hire a worker and $500 to lay off a worker, and inventory carrying cost is
$200 per printer and $100 per floppy disk unit (this means that if one printer were held in inventory for a
year, it would cost $200 for finance charges, insurance, warehousing expense, etc.). CPC's Austin plant
works the same number of days in each quarter, 13 five-day weeks. Evaluate two aggregate plans for next
year, level capacity with inventory and matching demand. Beginning inventory is zero printers and 450
floppy disk units in the level capacity plan and zero for both products in the matching demand plan.
Assume that the quarterly demand pattern repeats from year to year.

10. In Problem 3, if the machine-hours were sufficient and employees worked 13 weeks in each quarter and
40 hours in each week, determine how many employees the Zapcom Computer Company would require in
each quarter, using these aggregate plans: (a) level capacity and (b) matching demand.

11. Steel Fabricators is trying to decide between two aggregate capacity plans, No. 1 and No. 2. The number of
workers per quarter and the average annual finished-goods inventory in thousands of pounds for the two
plans are shown below. If hiring costs are $5,500 per worker hired, layoff costs are $1,800 per worker laid
off, and inventory carrying cost is $0.10 per pound per year, compute the annual hiring, layoff, carrying, and
total incremental costs for each plan. Which plan would you prefer? Why?
Average Annual Inventory
Aggregate Plan Quarter Workers Required (thousands of pounds)
No. 1 1 210 2,500
2 200
3 190
4 200
No. 2 1 200 3,950
2 200
3 200
4 200

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12. Fabric Inc. makes boys’ animal socks—one size fits all. Fabric is presently considering two capacity plans
for next year: level capacity with inventory and matching demand. The quarterly aggregate demand is
shown below for the two plans. The labor standard per pair of socks is 0.3 hour, hiring cost is $500 per
worker hired, layoff cost is $250 per worker laid off, carrying cost for finished goods is $1 per pair of socks
per year, and working days per quarter is 60.

Aggregate Demand
Quarter (thousands of pairs of socks)
1 350
2 500
3 900
4 400

The beginning inventory in the first quarter is 137,500 pairs of socks for the level capacity plan. The
beginning inventory in the first quarter is zero for the matching plan. Which plan exhibits the lowest
total incremental operating costs? Assume that the quarterly demand pattern repeats from year to year.

13. In Problem 7, two aggregate plans are now being evaluated by Blaze Advertising: level capacity with
backlog and matching demand. It costs Blaze $0.20 for every dollar of sales on any category of advertising
backlogged (delayed for completion at a later date) for one quarter. If it costs Acme $3,500 to hire and train
an employee and $1,500 to lay off an employee, and the beginning backlog in the first quarter is zero, which
plan exhibits the least cost? Assume that the quarterly demand pattern repeats from year to year.

14. A manufacturer is a produce-to-order, process-focused producer. Two aggregate plans are being evaluated
by the firm: matching demand and level capacity with backlog. In the level capacity plan, quarterly
backlogging costs have to be considered:

Quarterly backlog costs = $0.20 (QSD - QPD)

where QSD is quarterly sales dollars and QPD is quarterly production dollars. There are no production
costs when QPD $ QSD. In the matching demand plan, the cost of hiring and laying off workers must
be considered. It costs $2,000 to hire a worker and $3,000 to lay off a worker. The information
developed for this analysis is given below:
Thousands of Thousands of
Workers Workers Production Sales
Plan Quarter Hired Laid Off Dollars Dollars
Matching Q1 10 $1,200 $1,200
Q2 20 $1,600 $1,600
Q3 5 $1,500 $1,500
Q4 25 $1,000 $1,000

Level Q1 0 0 $1,325 $1,200

Q2 0 0 $1,325 $1,600
Q3 0 0 $1,325 $1,500
Q4 0 0 $1,325 $1,000
Which aggregate capacity plan would be preferred? Why?
15. A company is trying to decide between two aggregate capacity plans: level capacity with overtime and level
capacity with subcontracting. Either overtime or subcontracting would supply all demand above 50,000
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products per quarter. A subcontractor can supply any quantity of the product for $10 per product. Overtime
labor costs $9 per hour more for overtime than for straight-time. Each product requires an average of 1.25
labor-hours. The quarterly product demand for next year is: 50,000, 60,000, 55,000, and 65,000.
Compute the cost of each plan.