Capacity Planning Homework Assignment—To be Submitted

Capacity Planning Homework Assignment—To be Submitted

 

The Baltimore Manufacturing Company’s management forecasts demand for each quarter as follows:
 

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
Average quarterly demand	7000 units	9000 units	10000 units	8000 units

 

Assume that Arundel, Inc. started the First Quarter with 20 workers and 2000 units in inventory.  The company wishes to finish the year with an inventory of 5000 units on hand.  The average pay per worker is $9,000 per quarter, including benefits.  Production per worker is 100 units per quarter.  If necessary, overtime can be used up to 20% during the two peak demand quarters.  Overtime time work, if used, is paid at 150% of regular pay.  It costs $900 to hire a new worker and $1,200 to lay off a worker.  Inventory carrying cost averages $10 per unit per month.  

 

(A)  Using the table below, determine the total cost of using Level strategy. 
 

Resources	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
Beg.  Inventory
Production
Demand
Ending Inventory
Costs
Regular labor cost
Hiring/firing cost
Inv. Carrying cost
Other costs, if any
Total

. 

(B)  Using the table below, determine the cost of using the Chase strategy. 

 

Resources	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
Beg.  Inventory
Production
Demand
Ending Inventory
Costs
Regular labor cost
Hiring/firing cost
Inv. Carrying cost
Other costs, if any
Total

 

 

(C) If management decides to use a mixed strategy that combines Level with 10% overtime during the two high demand quarters, how many workers will be needed to meet the total production requirement for the year?    

Note:  For (C), you don’t need to complete the Resource and Cost tables as in (a) and (b).  Simply determining the number of workers will suffice. 

 

 

1. Carefully analyze and summarize the information given in the problem (i.e, current # of workers, production and pay per worker, beginning and ending inventory, inventory carrying cost, etc.)
 

2. Based on the given information, determine total required production quantity for the period:
Total required production for the entire planning period=   Total sales (or total demand) less  Beginning inventory plus Ending inventory
 

3. Calculate how many workers will be needed each period :

# of workers per period  = (Total quantity required as shown in #2 above) divided                                       by # of periods *
(*Note that "Period"  may be stated in weeks, months, or quarter)

4. Calculate ending inventory (EI) for each period:
EI at period XX = Beginning Inventory plus  Production for period  minus Sales (or demand) for the period
 

5. Labor cost  each period = # of workers * Pay per worker/period
 

6. Hiring or Firing cost = # of workers hired or Fired during the period * Cost of hiring or Firing/worker
 

7. Inventory carrying cost each period = EI at end of the period * Cost to carry Inventory per period