Solved: MT is a manufacturer of small camping and

snowmobile trailers

MT is a manufacturer of small camping and snowmobile trailers. The demand for camping
trailers occurs between January and June of each year (mostly in April and May). MT makes
camping trailers during January to June, shuts down in July, and then makes snowmobile
trailers from August to November. Suppose now is the end of December. For simplicity, we
consider every two months as a period. The aggregate demand forecasts for camping trailers
during each of the next three periods (six months) are:

MT employs 40 permanent workers. The employees are paid an average of $20 per hour
(including fringe benefits) and work approximately 320 hours a period (2 months). The 40
permanent workers can make approximately 1,000 camping trailers per period during regular
time. They' can also work up to 50 percent more as overtime (i.e., up to 12 hours a day vs the
regular 8 hours a day) and will be paid 1.5 times the regular wage rate. Alternatively, MT can
hire up to 40 additional temporary workers to work during a second shift. Hiring cost is $2,000
and layoff cost is $ 1,000 per temporary worker. Assume temporary workers’ wage rate and
productivity' are tire same as permanent workers. Also assume that temporary workers work
only during regular time (no overtime) and are kept for whole periods (i.e., for 2 months or 4
months). Inventory' holding cost per camping trailer per period is $180, and is charged to
average inventory level during each period. Currently there are no camping trailers on hand,
and the desired inventory' at the end of period 3 is zero (although a small positive number is
also acceptable). MT wishes to meet the total forecast demand, but shortage during a period
(except last) may be possible, in which case the shortage is backordered at the cost of $600 per
camping trailer per period backordered.

a. Calculate all the relevant unit costs.

b. Suppose MT uses permanent workers during regular time and overtime. Determine the
minimum cost aggregate production plan in this case.

c. Suppose MT hires temporary workers, but decides not to use permanent workers during
overtime (just regular time). Determine the minimum cost aggregate production plan in this
case.

d. Would overtime production by permanent workers and regular time production by tem-porary
workers simultaneously result in a tower total cost? Do a trade-off analysis. What is the overall
minimum cost aggregate production plan?

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 ANSWER
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