Name: Nguyen Khanh Linh

ID: IELSIU18219

ASSIGNMENT 3: AGGREGATE PLANNING

Question 1:
Beginning workforce: 8 workers
Subcontracting capacity: unlimited
Overtime capacity: 2000 units/month
Production rate per worker: 250 units/month
Regular wage rate: $15 per unit
Overtime wage rate: $25 per unit
Subcontracting cost: $30 per unit
Hiring cost: $100 per worker
Firing cost: $200 per worker
Holding cost: $0.50 per unit/month
Backordering cost: $10 per month
a) Test the level production with overtime and subcontracting strategies for meeting demand.
For the level production strategy, we first need to calculate regular production for all the months (average monthly demand):
1000+500+500+2000+3000+ 4000+5000+3000+1000+500+500+3000
= 2000 (units)
12
Next, we find the inventory of each month by using the formula: I t+1 = I t +¿ Pt +1−D t +1

Thus we have:

I 1 = 0+ P1 −D1=2000−1000=1000 (units)

I 2 = I 1+ P2 −D2=1000+2000−500=2500 (units)

I 3=4000 (units)

I 4=4000 (units)

I 5=3000 (units)

I 6=1000 (units)

I 7=−2000 (units) < 0

I 8=−3000 (units) < 0

I 9=1000 (units)

I 10=2500 (units)

I 11=4000 (units)

I 12=3000 (units)

We observe that inventory I 7 and I 8are negative numbers, which means that in July and August, the prodution does not meet the demand by the
associating quantities. Thus, manufacturer has to use overtime or subcontracting to compensate the unmet demand.
In July, the manufacturer needs to make an extra of 2000 units. The manufacturer would probably choose overtime for this month because
overtime is cheaper and 2000 units is within the given overtime capacity.
In August, the manufacturer needs to make an extra of 3000 units. In this month, the manufacturer would probably choose to make 2000 units
using overtime and 1000 units using subcontracting to minimise the cost.
We have:
Total regular production is: (2000)(12) = 24000 (units)
Total overtime is: 4000 (units)
Toatal subcontracting is: 1000 (units)
Total inventory is: 26000 (units)
Therefore the total cost using level production with ovetime and subcontracting is:
Cost of LP with OT and subcontraciting =
(15)(24000)+(25)(4000)+(30)(1000)+(0.50)(26000) = $503,000
The calculations are shown in the following table.

Demand Regular
Month Overtime Inventory
forecast production Subcontracting

Jan 1000 2000 0 0 1000

Feb 500 2000 0 0 2500
Mar 500 2000 0 0 4000
 Apr 2000 2000 0 0 4000
May 3000 2000 0 0 3000
Jun 4000 2000 0 0 1000
Jul 5000 2000 2000 0 (2000)
Aug 3000 2000 2000 1000 (3000)
Sep 1000 2000 0 0 1000
Oct 500 2000 0 0 2500
Nov 500 2000 0 0 4000
Dec 3000 2000 0 0 3000
Total 24000 24000 4000 1000 26000
Cost per
$15 $25 $30 $0.50
category
Total cost per
$360,000 $100,000 $30,000 $13,000
category

Total cost of
LP with
OT&Subk $503,000

b) Test the level production with backorders, as needed.

 Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Forecast 1000 500 500 2000 3000 4000 5000 3000 1000 500 500 3000 24000
Output                          
Regular 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 24000
Overtime _ _ _ _ _ _ _ _ _ _ _ _  
Subcontract _ _ _ _ _ _ _ _ _ _ _ _  
Output
1000 1500 1500 0 (1000) (2000) (3000) (1000) 1000 1500 1500 -1000 0
Forecast
Inventory                          
Beginning 0 1000 2500 4000 4000 3000 1000 0 0 1000 2500 4000  
Ending 1000 2500 4000 4000 3000 1000 0 0 1000 2500 4000 3000  
Average 500 1750 3250 4000 3500 2000 500 0 500 1750 3250 3500 24500
Backlog 0 0 0 0 0 0 0 1000 0 0 0 0 1000
Cost                          
Output                          
$36000
Regular $30000 30000 30000 30000 30000 30000 30000 30000 30000 30000 30000 30000
0
Overtime _ _ _ _ _ _ _ _ _ _ _ _ _
Subcontract _ _ _ _ _ _ _ _ _ _ _ _ _
Inventory $250 875 1625 2000 1750 1000 250 0 250 875 1625 1750 $12250
Backorder $0 0 0 0 0 0 0 10000 0 0 0 0 $10000

So the cost of level production with backorders is: 360,000 + 12,250 + 10,000 = $ 382,250

c) Test the chase demand strategy.

 Worker
Demand
Month s
forecast Production
needed Hire Fire
Jan 1000 1000 4 0 4
Feb 500 500 2 0 2
Mar 500 500 2 0 0
Apr 2000 2000 8 6 0
May 3000 3000 12 4 0
Jun 4000 4000 16 4 0
Jul 5000 5000 20 4 0
Aug 3000 3000 12 0 8
Sep 1000 1000 4 0 4
Oct 500 500 2 0 2
Nov 500 500 2 0 0
Dec 3000 3000 12 10 0
Total 24000 24000 96 28 20
Cost per
$15
category $100 $200
Total cost
per $360000
category $2,800 $4,000

So the total cost of chase demand strategy is: 360,000 + 2,800 + 4,000 = $ 366,800

d) Test the mixed strategy.

 Demand Overtim Inventor
Month Regular production Subcontractin
forecast e y
g
Jan 1000 1000 0 0 0
Feb 500 500 0 0 0
Mar 500 500 0 0 0
Apr 2000 3000 0 0 1000
May 3000 3000 0 0 1000
Jun 4000 3000 0 0 0
Jul 5000 3000 2000 0 0
Aug 3000 3000 2000 0 0
Sep 1000 3000 0 0 2000
Oct 500 500 0 0 2000
Nov 500 500 0 0 2000
Dec 3000 3000 0 0 2000
Total 24000 24000 4000 0 2000
Cost per
  $15 $25 $30 $0.50
category
Total
$100,00
cost per   $360,000 $0 $1,000
0
category

Total cost = 360,000 + 100,000 + 1,000 =