Question

harley, an american based manufacturer of bicycles, has just completed its demand forecast for their newest mountain-bike frame OEXI 7500. The forecast for the next 5 months is given below.

Month    Demand

Jan             225

Feb            200

Mar           250

Apr            225

May           850

The company employs 15 workers that work on no other frame but OEXI 7500. Each new employee must be trained before he/she can work. It costs $750 to train a new worker. Assume that training occurs instantaneously. Once trained, a new worker can produce frames at the same pace as all other workers. Each worker produces 25 frames per month. Each worker is paid $2,400/month. It costs $400 in taxes and legal fees to lay-off a worker. It costs harley $30/month to hold a frame in inventory. The company incurs a backorder cost of $70 per frame per month due to additional processing costs and lost customer goodwill. All backorders must be filled by the end of December. Costs are allocated as follows: Holding costs are charged to the ending inventory in each month. Backorders are charged at the end of each month for any order not filled. Hiring and laying off decisions are made at the beginning of a month, and costs are charged at that time. Employees cannot work overtime. Note that if a fractional number of workers is calculated, that number should be rounded up for payroll purposes. At the start of the planning horizon harley has no inventory or outstanding backorders of OEXI 7500.

A. What is the total straight time production cost in a chase strategy?

B. What is the number of employees hired in the month of May?

C. In a level aggregate plan (using both inventories and backorders), what is beginning inventory for the month of April. Please assume the factory hired 5 more employees before they started the operation in January.

D. How many employees were hired in the month of March?

Answer 1

Chase plan:

EXCEL FORMULA:

---------------------------------------------------------

Level plan:

Using level plan, constant level of workforce is maintained every month.

Production = Average monthly demand = 1750/5 = 350

Level workforce required = 350/25 = 14   (note that each employee produces 25 frames per month)

---------------------------------------------------------

A. What is the total straight time production cost in a chase strategy?

ANSWER $ 168,000

B. What is the number of employees hired in the month of May?

ANSWER: 25

C. In a level aggregate plan (using both inventories and back-orders), what is beginning inventory for the month of April. Please assume the factory hired 5 more employees before they started the operation in January.

ANSWER: 14 workers required for level aggregate plan. Currently, there are 15 workers employed, which means 1 worker has to be laid off at the beginning of Jan. So, hiring of 5 more employees is not required.

Beginning inventory for the month of April = 500

D. How many employees were hired in the month of March?

ANSWER: 0

Using level plan, hiring or layoffs are done at the beginning of planning period only.