Question

Question 39

You are the operations manager for an OEM manufacturing plant that produces YBOX game consoles. Based on the sales record from 2014, the marketing manager forecasts the demand for Jan-May of 2015 in Table 1:

Table 1

Time Period	JAN	FEB	MAR	APR	MAY	Total
Demand Forecast	3,500	4,500	6,000	6,500	5,000
Number of Working Days per Time Pd	20	20	20	20	20

Table 2

Production Time	1 hour per unit
Average labor cost	$12 per hour
Workweek	5 days, 8 hours per day
Days per month	20 work days per month
Beginning inventory	1,000 units
Safety stock	One month
Shortage cost	$10 per unit per month
Carrying cost	$4 per unit per month

Table 3

Time Period	January	February	March	April	May	Total
Beginning Inventory
Working Days per Month
Production Hours Available (Working days per month x hrs/day x # of workers) 23 workers*
Actual Production(Production hrs available / labor hrs required per unit)
Demand Forecast
Ending Inventory(Beginning inventory + Actual production – Demand Forecast)
Units Short(Absolute value of a negative ending inventory)
Shortage Cost(Units short x Cost of stockout)
Safety Stock (one month)
Units Excess(Ending inventory – Safety Stock) only if positive amount
Inventory Cost(units excess x Inventory holding cost)
Straight Time Cost(Production hrs available x Straight time labor cost)
* (Sum of Production Requirement hr/unit) / (Sum of Production Hours Available x 8 hr /day) = (16,000 x 1) / (100 x 8) = 23

As the operations manager, you prefer to keep a constant workforce and production level, absorbing variations in demand through inventory excesses and shortages. Demand not met is carried over to the following month. Assuming you currently have 23 workers, what is the total cost of this plan (e.g., adding all costs from January to May)? You can use Table 3 to figure out the cost structure

	A.	$386,200
	B.	$296,400
	C.	$329,800
	D.	$249,200
	E.	$349,200

Answer 1

Time Period	January	February	March	April	May	Total
Beginning Inventory	1000	1180	360	0	0
Working Days per month	20	20	20	20	20
Production Hours Available (Working days per month x hrs/day x # of workers)  23 workers*	3680	3680	3680	3680	3680
Actual Production (Production hrs available / Labor hrs required per unit)	3680	3680	3680	3680	3680
Demand forecast	3500	4500	6000	8460	9780
Ending Inventory (Beginning inventory + Actual production - Demand Forecast)	1180	360	-1960	-4780	-6100
Units Short (Absolute value of a negative ending inventory)	0	0	1960	4780	6100
Shortage Cost (Units short x Cost of stockout)	0	0	19600	47800	61000	128400
Safety Stock (one month)	5100	5100	5100	5100	5100
Units Excess (Ending inventory - Safety stock) only if positive amount	0	0	0	0	0	0
Inventory Cost (Units excess x Inventory holding cost)	0	0	0	0	0	0
Straight Time Cost (Production hrs available x Straight time labor cost)	44160	44160	44160	44160	44160	220800
*(Sum of Production Requirement hr./unit)/(Sum of Production Hours Available x 8 hr./day) = (16,000 x 1)/(100x 8) = 23

Total cost = 128400+220800 = $349,200. Option E

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