Question

Mischief Company had been experimenting with various sales and operations plans. As the firm started to lay out plans for next year, management decided to use a six-month planning horizon to reduce computation cost. The firm’s basic data were: Employment level for this December = 20 people. Demand forecasts for January to June of next year are 200, 240, 220, 300, 250, and 240 units respectively. Inventory level planned for the end of this December = 0. Back-orders aren’t allowed in the plan. Desired April ending inventory = 0. Regular time per month = $2,000 per worker-month. Production = 12 units/person/month. Overtime premium = 50 percent of regular time. Overtime limit = 25 percent of regular time per person per month. Inventory carrying cost = $150/month/unit (on the average per month). Hiring (or firing) cost = $2,000 per person.

to compare the cost of a fixed employment production plan (i.e., 20 people) that uses overtime to meet the demand to a level production plan that uses no overtime to meet production. 

Answer 1

Please refer to the calculaction below comparing total cost in fixed employment production plan in comparison to Total cost in plan that uses no overtime (new hire or fire).

Conclusion:

Total cost in fixed employment plan = USD 318500

Total cost in No overtime production plan = USD 348750.

Hence, Fixed empoyment plan (with overtime when needed) to be noted.

Please note: Inventory balance at the end of april to be taken as 0. Hence accordingly, the production units oid adjusted in below solution.