Demand and Working Days January February March April May June Totals

Demand Forecast 500 600 650 800 900 800 4,250

Number of Working Days 22 19 21 21 22 20 125

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 Total
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 $700
Workers Laid Off 0 0 1 0 0 0
Layoff Cost (Workers Laid Off x $100) $0 $0 $100 $0 $0 $0 $100
Straight Time Cost (Production Hours Required x
$15,000 $30,000 $32,500 $40,000 $45,000 $40,000 $202,500
$12.50)
Total Cost $203,300

Production Plan 2: Constant Workforce; Vary Inventory and Stockout

January February March April May June Total
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 $75,600
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 $1,400
Straight Time Cost (Production Hours Available x
$22,000 $19,000 $21,000 $21,000 $22,000 $20,000 $125,000
$12.50)
*Assume a constant workforce of 10. Total Cost $202,000
 Production Plan 3: Constant Workforce; Subcontract
January February March April May June Total
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 $155,000
Straight Time Cost (Production Hours Available x
$22,000 $19,000 $21,000 $21,000 $22,000 $20,000 $125,000
$12.50)

*Assume a constant workforce of 10. Total Cost $280,000

Summary
Sub- Straight Excess
Plan Description Hiring Layoff
contract Time
Shortage
Inventory
Total Cost

a. Exact Production; vary workforce $700 $100 $202,500 $203,300

b. Constant workforce; vary inventory and $125,000 $75,600 $1,400 $202,000
shortages
c. Constant workforce; subcontract $154,000 $125,000 $279,000