Aggregate Planning Tutorial P1,P2 and P3
Problem1:
Plan A: Vary the workforce level to execute a strategy that produces exactly the
forecasted demand for each month. (we should use layoff and hiring)
Note: Row 7, production capacity is of previous month
1- Labor cost = monthly produced units * monthly labor cost per unit
Labor cost (Jan) = 1200 units * 50$ = 60,000 $
(Feb) = 1600 units * 50$ = 80,000 $ …etc.
2- Layoff cost = units decreased * 7500$ per 100 units (7500/100)
Layoff cost (Jan) = 400 units * (7500 / 100) = 30,000 $
(Jul) = 400 units * (7500 / 100) = 30,000 $ …etc.
3- Hiring Cost = units increased * 5000$ per 100 units (5000/100)
Hiring cost (Feb) = 400 units * (5000 / 100) = 90,000 $
(Mar) = 200 units * (5000 / 100) = 10,000 $ …etc.
Monthly total cost= Labor cost + Layoff cost + Hiring cost
Note: Units decreased and Units increased are variation in production capacity.
Plan B: Produce a constant rate of 1400 units per month, which will meet
minimum demands. Then use subcontracting, with additional units at a premium
price of 75$ per unit.
Subcontracted units = Demanded units – (Production units + Inventory units)
Subcontracted units (Feb) = 1600 – (1400+200) = 0
Subcontracted units (March) = 1800 – (1400+0) = 400 units
Note: we calculate subcontracted units when Demand > Production
1- Labor cost = monthly production units * monthly labor cost per unit
Labor cost (Jan) = 1400 units * 50$ = 70,000 $
(Feb) = 1400 units * 50$ = 70,000 $ …etc.
2- Holding cost = Inventory holding units * holding cost per unit per month
Holding cost (Jan) = 200 * 20$ per unit per month= 4,000 $
3- Subcontracting cost = Subcontracted units * Subcontract cost per unit
Subcontracting cost (March) = 400 units * 75$ per unit = 30,000 $
Subcontracting cost (May) = 800 units * 75$ per unit = 60,000 $
Monthly total cost= Labor cost + Holding cost + Subcontracting cost
Plan C: Keep a stable workforce by maintaining a constant production rate equal
to the average requirements and allowing varying inventory levels. (Average
Requirements= Total requirements / 8 months) (Total requirements = Total
demand)
1- Labor cost = monthly production units * monthly labor cost per unit
Labor cost (Jan) = 1825 units * 50$ = 91,250 $
2- Holding cost = Inventory holding units * holding cost per unit per month
Holding cost (Jan) = 625 units * 20$ = 12,500 $
(Feb) = 850 units *20$ = 17,000 $
3- Stockout cost = No stockout cost because we always meet the units demanded.
Monthly total cost= Labor cost + Holding cost + Stockout cost
Problem2:
Note: Do not produce overtime if production or inventory are adequate to cover
demand.
Plan D: Keep the current workforce stable at production 1,600 units per month.
Permit a maximum of 20% overtime at an additional cost of 20$ per unit.
A warehouse now constrains the maximum allowable inventory on hand to 400
units or less.
Maximum Overtime Production = 20%*1600= 320 units
Overtime production units (max of 320 units) = Demanded units – Regular Production Units
Stockout units = Units demanded – All Production Units (Regular Production + Overtime Production)
1- Regular Prod-Cost = monthly production units * monthly labor cost per unit
Regular Prod-Cost (Jan) = 1600 units * 50 $ per unit = 80,000 $ (Regular Labor Cost)
2- Overtime Period Cost = overtime units * overtime cost per unit (50$+20$)
Overtime period cost (May) = 320 units * 70$ = 22,400 $
3- Holding Cost = Inventory Units * Holding cost per unit per month
Holding Cost (March) = 200 units * 20 $ = 4,000 $
4- Stockout Cost = Stockout units * Stockout cost per unit
Stockout Cost (May) = 280 units * 100 $ per unit = 28,000 $
Monthly total cost=Regular Labor cost + Overtime period cost +Holding cost + Stockout
cost
Plan E: Keep the current workforce, which is producing 1,600 units per month, and
subcontract to meet the rest of the demand.
Monthly total cost=Regular Labor cost + Subcontracting cost +Holding cost + Stockout
cost
Problem3:
1) & 2)
Cohen & 3 CPAs
Notes:
Cohen and his 3 CPAs can together bill 640 hours per month.
(each one bills 160 hours) (Regular billed hours)
Cohen strongly discourages any CPA from working (billing) more
than 240 hours in any given month. --> Each one can bills regular
160 bills + 80 bills as overtime when needed.
Total Regular Capacity = 160*4=640 hours
Total Overtime Capacity = 80*4= 320 hours
1. Regular time cost = Monthly Salary * 4 = 5,000$ * 4 = 20,000 $
2. Overtime cost = overtime hours * overtime hour cost
Overtime cost (March) = 320 * 62.5 $ = 20,000 $
3. Sub-cost = subcontracted hours * subcontracted hour cost
Sub-cost (March) = 40 * 125 $ = 5,000$
Monthly total cost=Regular time cost + Overtime cost +
Subcontracting cost
3) Cohen & 4 CPA
Total Regular Capacity = 160* 5 = 800 hours
Total Overtime Capacity = 80*5= 400 hours
1. Regular time cost = Monthly Salary * 5 = 5,000$ * 5 = 25,000 $
2. Overtime cost = overtime hours * overtime hour cost
Overtime cost (March) = 200 * 62.5 $ = 12,500 $
Monthly total cost=Regular time cost + Overtime cost +
Subcontracting cost.
