Question

SummerFun, Inc., produces a variety of recreation and leisure products. The production manager has developed an aggregate forecast:

Month	Mar	Apr	May	Jun	Jul	Aug	Sep	Total
Forecast	50	44	55	60	50	40	51	350

Use the following information to develop aggregate plans.

Regular production cost	$	80	per unit	Back-order cost	$	20	per unit
Overtime production cost	$	120	per unit	Beginning inventory		0	units
Regular capacity		40	units per month
Overtime capacity		8	units per month
Subcontracting cost	$	140	per unit
Subcontracting capacity		12	units per month
Holding cost	$	10	per unit per month

b. Develop aggregate plan using the same strategy used in part a except that backlogs are allowed here. There should be no backlog remaining at the end of September. Hint: Use a maximum backlog of 5 in any given month. You will need to develop a set of rules regarding which capacity option (regular, overtime, subcontracting) is always preferable, and regarding the timing of these options (i.e., is it cost-effective to build ahead (and thus carry inventory) or to incur a backlog?). (

Answer 1

To plan consistent production every month:

Level Design Regular Production per Month = (Total Forecast - Beginning Inventory) / Number of Months = (350 - 0) / 7 = 50 units per month.
Though, consistent volume is 40 units per month. So, we will plan on 40 units per month of systematic manufacture every month.

Overtime Production Vs. Subcontracting:
Overtime production cost per unit = $120.
Subcontracting cost per unit = $140.
So, using overtime production in the current month each time is favoured to subcontracting in the current month.
If we have extra capability accessible in the current month, it would cost a lesser amount of to produce a unit up to one month premature using overtime production and transmit it in inventory [cost = $120 + (1 * $10) = $130] than it would to subcontract that unit in the current month (cost = $140).

Backlog ..Favourable or Unfavourable ?

Backorder cost = $20 per unit per month while holding cost = $10 per unit per month.

Assumed the choice of manufacturing a unit one month early or one month late, we would choose to manufacture that unit one month premature. Likewise, given the choice of subcontracting a unit one month early or one month late, we would desire to subcontract that unit one month early.
Since manufacturing a unit using overtime production costs $20 less than subcontracting does, we would be unconcerned between producing a unit one month late using overtime [cost = $120 + (1 * $20) = $140] and subcontracting that unit in the current month (cost = $140).