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Chapter 13 Problems 13.3
Chapter 13 Problems 13.3
3:
The president of Hill Enterprises, Terri Hill, projects the firms aggregate demand
requirements over the next 8 months as follows:
Her operations manager is considering a new plan, which begins in January with 200 units on
hand. Stockout cost of lost sales is $100 per unit. Inventory holding cost is $20 per unit per
month. Ignore any idle-time costs. The plan is called plan A.
Plan A: Vary the workforce level to execute a chase strategy by producing the quantity
demanded in the prior month. The December demand and rate of production are both 1,600
units per month. The cost of hiring additional workers is $5,000 per 100 units. The cost of
laying off workers is $7,500 per 100 units. Evaluate this plan.
Ans:
Stock on Hand 200 unit
Month
Demand
Dec
Production
Hire
Layoff
Cost
400
$30,000
1600
Jan
1400
1200
Feb
1600
1600
400
$20,000
Mar
1800
1800
200
$10,000
Apr
1800
1800
May
2200
2200
Jun
2200
2200
Jul
1800
1800
400
$30,000
Aug
1400
1400
400
$30,000
$0
400
$20,000
$0
$140,000
Ans:
The average requirement is found by summing the total demand from January through
August, and dividing the result by 8 months to find 1,775 units per month.
Month
Demand
Production
Dec
Ending Inv.
Stock-out
Cost
200
Jan
1400
1775
575
$11,500
Feb
1600
1775
750
$15,000
Mar
1800
1775
725
$14,500
Apr
1800
1775
700
$14,000
May
2200
1775
275
$5,500
Jun
2200
1775
150
$15,000
Jul
1800
1775
25
$2,500
Aug
1400
1775
375
$7,500
$85,500
Total cost for the plan is $85,500. We would recommend plan C over plan A.
b) Plot the demand with a graph that also shows average requirements. Conduct your analysis
for January through August.
Demand Chart
Average Requirement
We we can see that the demand from January till February is below the average requirement
and then from March till July the demand is above the the average requirement and then in
the month of August, the demand goes below the average requirement.
Chapter 13 problems 13.9:
Mary Rhodes, operations manager at Kansas Furniture, has received the following estimates
of demand requirements:
July
Aug.
Sept.
Oct.
Nov.
Dec.
1,000
1,200
1,400
1,800
1,800
1,600
a) Assuming stockout costs for lost sales of $100 per unit, inventory carrying costs of $25 per
unit per month, and zero beginning and ending inventory, evaluate these two plans on an
incremental cost basis:
Plan A: Produce at a steady rate (equal to minimum requirements) of 1,000 units per month
and subcontract additional units at a $60 per unit premium cost.
Plan B: Vary the workforce, which performs at a current production level of 1,300 units per
month. The cost of hiring additional workers is $3,000 per 100 units produced. The cost of
layoffs is $6,000 per 100 units cut back.
Ans:
Plan A
Month
Dema
nd
June
Producti
on
End of
period
Inventory
Sub
Contract
Units
Invent
ory
Cost
Subcontra
ct Cost
1000
July
1000
1000
August
1200
1000
200
12000
Septemb
er
1400
1000
400
24000
October
1800
1000
800
48000
Novemb
er
1800
1000
800
48000
Decemb
er
1600
1000
600
36000
Total
Cost
Plan B
$ 168000
Month
Dema
nd
June
Producti
on
Hire
Hire
Cost
Layof
Layof
Cost
1300
July
1000
1000
300
18000
August
1200
1200
200
6000
Septemb
er
1400
1400
200
6000
October
1800
1800
400
12000
Novembe
r
1800
1800
Decembe
r
1600
1600
200
12000
24000
30000
Total Cost
Estimate of Billable
Hours
Jan
600
Feb
500
Mar
1000
Apr
1200
May
650
Jun
590
Cohen has an agreement with Forrester, his former partner, to help out during the busy tax
season, if needed, for an hourly fee of $125. Cohen will not even consider laying off one of
his colleagues in the case of a slow economy. He could, however, hire another CPA at the
same salary, as business dictates.
Refer to the CPA firm in Problem 13.20. In planning for next year, Cohen estimates that
billable hours will increase by 10% in each of the 6 months. He therefore proceeds to hire a
fifth CPA. The same regular time, overtime, and outside consultant (i.e., Forrester) costs still
apply.
a) Develop the new aggregate plan and compute its costs.
Ans:
Cost with the 1st plan of 4 CPAs and using Forrester as outside consultant (Previous
aggregate plan)
Month
Estimate of
Billable
Hours
Capacit
y
Extra
Hours
Regular
Cost
Overtim
e
Forreste
r
Total
Cost
Jan
600
640
-40
20000
20000
Feb
500
640
-140
20000
20000
Mar
1000
640
360
20000
20000
5000
45000
Apr
1200
640
560
20000
20000
30000
70000
May
650
640
10
20000
625
20625
Jun
590
640
-50
20000
20000
Total
Cost
19562
5
Cost with the 2nd plan of 5 CPAs and using Forrester as outside consultant with
increased billable hours (New aggregate plan)
Month
Estimate of
Billable
Hours
Capaci
ty
Extra
Hours
Regular
Cost
Overtim
e
Forrest
er
Total
Cost
Jan
660
800
-140
25000
25000
Feb
550
800
-250
25000
25000
Mar
1100
800
300
25000
18750
43750
Apr
1320
800
520
25000
25000
15000
65000
May
715
800
-85
25000
25000
Jun
649
800
-151
25000
25000
Total
Cost
20875
0
b) Comment on the staffing level with five accountants. Was it a good decision to hire the
additional accountant?
Ans:
With five accountants, the total cost is higher compared to the 1st plan of 4 CPAs. So, I dont
think that it was a good decision to hire the additional accountant.