Operations Planning Case Analysis: 10 marks (each sub question 1 mark each)
Here is an operations planning case analysis. You are expected to do the following questions and submit them for marking at the end of the semester via utsonline and in hard copy to your tutor in week 10.
A company has the following demand forecast next year, expressed in six bimonthly periods:
Forecast Demand:
Period 1 = 4,500 units Period 4 = 6,500 units
Period 2 = 3,000 units Period 5 = 5,100 units
Period 3 = 4,800 units Period 6 = 5,500 units
The company begins the planning year with 500 units of inventory as safety stock and finish the year with the same inventory amount.
The following cost data have been obtained:
Each employee works 160 regular working hours per month
Each unit requires 2 standard hours to produce
The labour costs are $20 per normal hour and $27 per overtime hour
It costs $4 per month to hold an item in the warehouse
Question 1
- a) How many employees will be needed during the peak demand of 6,500 units in period 4 if no overtime production is to be scheduled?
- b) What will be the average labour cost for each unit if the company maintains for the entire year sufficient staff to meet the peak demand without overtime?
- c) What percentage above the standard-hour cost is the company’s average labour cost per unit in this year due to the company’s decision to maintain stable employment sufficient to serve the peak demand period without overtime?
- d) What is the total cost in this option (including labour and inventory cost)?
Note: Round up the decimal number of employees, e.g. 36.4 is round up to 37.
Question 2
The company is considering using overtime subject to a maximum of 20 percent of regular-time hours.
- a) What is the average cost per unit if the work force is maintained at a level so that overtime can be used to the maximum of 20% of regular hours during the peak period in period 4?
- b) What is the total cost in this option (including labour and inventory cost)?
Note: Round up the decimal number of employees, e.g. 36.4 is round up to 37.
Question 3
The company wants to determine the cost of meeting demand by using a mixed strategy which involves changes in the number of employees and the use of overtime work. To keep from adding too many temporary employees during the peak demand period, the company will use overtime equal to up to 20% of the regular-time hours available.
The company has 25 employees at the end of the current year (i.e. at the beginning of period 1 of the following year which is being planned), and wants to end period 6 of the planning year with the same number of employees, i.e. 25 employees. It costs $400 to hire and $500 to lay off an employee.
In the beginning of each period, if available regular time with current employees is not sufficient to produce the demand of that period, overtime is used. A new employee is hired only if current employees are not enough to produce the required products of that period even if they work 20% overtime. In this situation, new employees will be hired to work during both regular time and overtime (maximum of 20% overtime).
In the beginning of each period, if the required time to produce the demand of that period is less than the available production time (with current number of employees working both regular and overtime), some of the employees will be fired until the total available time (including both available regular and overtime) is enough to produce the demand of that period.
- a) Find the employment level for each bimonthly period.
- b) Find the total payroll-related costs for the year.
- c) What cost per unit results from these payroll-related costs?
- d) What is the total cost of this option (including labour and inventory cost)?
Note: Round up the decimal number of employees, e.g. 36.4 is round up to 37.