OTR Korean Furniture: An Aggregate Plan

OTR Korean Furniture is operating in Davao City producing tables, chairs

cabinets and other custom-made furniture whose 12-month demand cycle is
shown below. OTR produces tables on a make to stock basis.
Each unit of table requires 10 worker-hours to be produced at a labor cost
of P 60.00 per hour (regular rate) and P 70.00 overtime cost per hour. The total
cost per unit is estimated at P 6,500.00. Units also can be subcontracted at P
6,700 per unit. There are currently 18 workers employed in the production
department. To hire additional workers entail hiring and training costs of P
6,800.00 per person. OTR Korean Furniture maintains a policy of
retaining a safety stock equal to 20% of the monthly forecast. Currently, the
beginning inventory as of January is 50 units of tables at a cost of P 85.00 per unit
per month. Stock outs will be assigned to a cost of P 6,500.00 per unit per month.
The safety stock of the month is already the given volume as the beginning
inventory of the following month. In an instance of
excessive volume, sub-contracting can be done at a cost of P 1,100 per unit.
Month FCast Workdays Work Hours
(@ 8 hrs/day)
Jan 300 22 176
Feb 380 19 152
Mar 360 21 168
Apr 260 21 168
May 250 22 176
Jun 300 20 160
Jul 350 20 160
Aug 230 21 168
Sep 350 20 160
Oct 370 21 168
Nov 380 20 160
Dec 430 17 136
Three aggregate plans are proposed, compare the three and identify which
among the choices is the best alternative based on the parameter-lowest cost.

Aggregate Plan 1 Hire additional Workforce for each month needing

manpower, zero overtime.
Aggregate Plan 2 Maintain a constant of 18 workers and use overtime for
excess requirement. (The maximum limit of OT hours
per
person is 8 hours OT per day per person)

Aggregate Plan 3 Hire Sub-contractor for excess volume ensure zero

overtime.