Question

Suppose you have been given responsibility for developing the six-month aggregate production plan at Soda Galore, a manufacturer of soft drinks. Your company makes three types of soft drinks: regular, diet, and super-caffeinated. Fortunately, all three types are made using the same production process, and the costs related to switching between the three types are so minimal that they can be ignored. Thus, you can treat your problem as an aggregate planning exercise where the planning unit is cases of soft drinks, regardless of what types of drinks they are.

January	16,000 cases
February	24,000 cases
March	32,000 cases
April	32,000 cases
May	60,000 cases
June	88,000 cases
Total Demand	252,000 cases
Average Monthly demand	42,000 cases

Current workforce	10 workers
Average monthly output per workder	2000 cases per month
Inventory holding cost	$0.30 cases per month
Regular wage rate	$36 per hour
Regular production hours/month/worker	100 hours
Overtime wage rate	$54 per hour
Hiring cost	$1000 per worker
Firing cost	$1500 per worker
Subcontracting cost	$2.90 per cases
Beginning inventory	7000 (all safety stock)

Assume that employees negotiate an increase in the regular production wage rate to $40 per hour and $60 per hour for overtime. Also assume that Soda Galore always plans to hold at least 7,000 cases of safety stock to meet unanticipated customer demand. Assume that hiring and layoff/firing, if necessary, occur at the beginning of the month.

a) Determine the cost of the level production plan.

b)Determine the cost of the chase production plan.

Total cost is workforce size adjusted	???
Total cost if overtime production used	???
Total cost if subtracting used	???

c)After much internal discussion, the company decides to maintain a permanent workforce of 10 production workers. Given the same planning information and this new requirement, develop a six-month production plan based on hybrid production. Determine the cost of the hybrid production plan. Use the overtime cost.

Answer 1

A. For Level Production: We get 21 workers as regular only

		Level	Jan	Feb	Mar	Apr	May	Jun		Total	Safety stock
		Demand	16000	24000	32000	32000	60000	88000		252000
		Safety Stock	7000	7000	7000	7000	7000	7000
Prod per worker	Starting worker	Begin Inv	7000	26000	44000	54000	64000	46000		Man power	21	(252000/6*2000)
2000	10	Total requirement	23000	5000	-5000	-15000	3000	49000
Hours/month	100	Regular worker	21	21	21	21	21	21
		Act production	42000	42000	42000	42000	42000	42000
(Demand+Safety stock-Act Production-Begin Inv)		Closing inv	26000	44000	54000	64000	46000	0
(Regular-Starting worker)		Hire	11	0	0	0	0	0
	Rate	Fire	0	0	0	0	0	0
(Rate*Hour/month *Regular worker)	40	Labor cost	84000	84000	84000	84000	84000	84000
(Hire*Rate)	1000	Hiring cost	11000	0	0	0	0	0
(Fire*Rate)	1500	Firing cost	0	0	0	0	0	0
(Closing inv+Safety stock*Rate)	0.3	Inventory cost	9900	15300	18300	21300	15900	2100
(Sum of all costs)		Total cost	597800