Krajewski TIF Chapter 14

Chapter 14  Sales and Operations Planning
Chapter
14 Sales and Operations Planning
TRUE/FALSE
1. The sales and operations plan is a statement of a company’s production rate, workforce levels, and
inventory holdings based on estimates of customer requirements and capacity limitations.
Answer: True
Reference: Introduction
Difficulty: Easy
Keywords: sales, operations, plan, production, rate, workforce
2. A production plan is another name for a manufacturing firm’s sales and operations plan.
Answer: True
Difficulty: Easy
Keywords: production, plan, sales, operations, manufacturing
3. A staffing plan is a manufacturing firm’s sales and operations plan.

Answer: False
Difficulty: Moderate
Keywords: staffing, plan, service, manufacturing
4. The sales and operations plan typically has a one-year planning horizon.
Answer: True
Reference: The Purpose of Sales and Operations Plans
Keywords: sales, operations, plan, horizon
5. A product family is a group of customers, services, or products that have similar demand
requirements and common processes, labor, and materials requirements.
Answer: True
Keywords: product, family
401
6. The best mix of full- and part-time employees is a sales and operations planning decision.
Answer: True
Keywords: labor, mix, full-time, part-time, sales, operations, decision
7. A master production schedule is a schedule that specifies the timing, size, and sequence of production
for aggregated part families.
Answer: False
Keywords: master, production, schedule
8. One objective of a sales and operations plan is to minimize changes in production rates.
Answer: True
Reference: The Decision Context
Keywords: sales, operations, plan, objective
9. Undertime is the situation that occurs when employees do not have enough productive work for the
regular-time workday or workweek.
Answer: True
Keywords: undertime, regular, time
10. Anticipation inventory is used to absorb uneven rates of demand or supply.

Answer: True
Keywords: anticipation, inventory
11. Complementary products are actions that attempt to modify demand and, consequently, resource
requirements.
Answer: False
Keywords: complementary, products
12. A level strategy matches demand during the planning horizon by varying either the workforce level or
the output rate.
Answer: False
Keywords: level, output, strategy
402
13. One type of cost considered when preparing a sales and operations plan is inventory holding cost.
Answer: True
Keywords: sales, operations, cost, inventory, holding
14. Once a sales forecast has been entered into a sales and operations plan it cannot be updated since it
would skew the process results.
Answer: False
Reference: Sales and Operations Planning as a Process
Difficulty: Easy
Keywords: sales, operations, planning, process, forecast
15. The sales and operations planning process is very similar to the forecasting process.
Answer: True
Reference: Sales and Operations Planning as a Process
Keywords: sales, operations, planning, process
16. The major drawback to the spreadsheet approach to sales and operations planning is its complexity.
Answer: False
Reference: Decision Support Tools
Keywords: spreadsheet, sales, operations, complexity
17. The transportation method of sales and operations planning is more applicable to service provider’s
staffing plans than to manufacturer’s inventory plans.
Answer: False
Keywords: transportation, sales, operations, staffing, service
MULTIPLE CHOICE
18. A sales and operations plan for a service firm is:

a. a staffing plan.
b. a process plan.
c. an operations plan.
d. a production plan.
Answer: a
Difficulty: Easy
Keywords: staffing, sales, operations, plan
403
19. A sales and operations plan for a manufacturing firm is:

a. a staffing plan.
b. a production plan.
c. an operations plan.
d. a process plan.
Answer: b
Difficulty: Easy
Keywords: production, sales, operations, plan
20. Which one of the following statements about sales and operations planning is best?
a. A production plan generally focuses on production rates and inventory holdings, whereas a staffing
plan focuses on staffing and other labor-related factors.
b. Reactive alternatives are actions that adjust demand patterns.
c. Operations and marketing are the only two functional areas that supply inputs for developing
production and staffing plans.
d. A level strategy stabilizes inventory levels by adjusting production rates or staff levels to match
demand levels over the planning horizon.
Answer: a
Reference: Multiple sections
Keywords: production, staffing, sales, operations, plan
21. Which one of the following statements concerning production and staffing plans is best?
a. Production and staffing plans specify production rates, workforce levels, and inventory holdings,
but do not account for capacity limitations because they are aggregated.
b. Production and staffing plans attempt to achieve several objectives, all of which must be consistent
with one another.
c. When production and staffing plans are made, aggregation can be performed only along two
dimensions: products and time.
d. The impact of production and staffing plans cuts across several functional areas of the firm.
Answer: d
22. Which one of the following statements concerning production and staffing plans is best?
a. Aggregation can be performed along three dimensions: product families, labor, and time.
b. A staffing plan is the intermediate link between the business plan and the master production
schedule.
c. Production plans are based primarily on information from the master production plan.
d. A master production schedule is a projected statement of income, costs, and profits.
Answer: a
Reference: Sales and Operations Planning Across the Organization
404
23. Which one of the following statements about managerial inputs to production and staffing plans is
best?
a. Finance provides labor and machine standards.
b. Human resources provide the training capacity and labor-market conditions.
c. Marketing provides new product or service developments.
d. Materials provide the current staffing level.
Answer: b
Keywords: production, staffing, sales, operations, plan, input
24. Which of the following is NOT a typical product family?

a. A group of customers.
b. A group of products.
c. A group of services.
d. A group of suppliers.
Answer: d
25. Companies perform aggregation along three dimensions:

a. products, labor, revenue.
b. time, revenue, services.
c. services, labor, time.
d. time, products, revenue.
Answer: c
Keywords: product, service, labor, time, aggregate
26. The planning horizon for a sales and operations plan is typically:
a. 0 – 3 months.
b. 3 – 18 months.
c. 18 – 36 months.
d. 36 months – 60 months
Answer: b
Keywords: planning, horizon
27. A financial assessment of a for-profit organization’s near future – for one or two years ahead, is a(n):
a. business plan.
b. annual plan.
c. resource plan.
d. financial budget.
Answer: a
Difficulty: Easy
Keywords: plan, business, financial
405
28. A financial assessment of a not-for-profit organization’s near future – for one or two years ahead, is
a(n):
a. business plan.
b. annual plan.
c. resource plan.
d. financial budget.
Answer: b
Difficulty: Easy
Keywords: plan, business, financial
29. A business plan brings together the plans and expectations of the:
a. operations, finance, and human resources functions.
b. marketing, operations, and information systems functions.
c. finance, marketing, and operations functions.
d. human resources, information systems, and marketing functions.
Answer: c
Keywords: plan, business, finance, marketing, operations
30. Based on the sales and operations plan for a service provider, the next planning level is:
a. scheduling.
b. annual planning.
c. constraint management.
d. resource planning.
Answer: d
Keywords: plan, business, resource
31. The lowest of these planning levels is:

a. resource planning.
b. forecasting.
c. scheduling.
d. sales and operations planning.
Answer: c
Keywords: plan, business, resource
406
best?
a. Accounting and finance provide forecasts of demand and competition behavior.
b. Operations provides training capacity.
c. Materials provides supplier capabilities.
d. Human resources provides plans for future equipment capacities.
Answer: c
33. Which concern is NOT included in a typical sales and operations plan?
a. Product family production rates
b. Purchased materials
c. Inventory levels
d. Workforce levels
Answer: b
Keywords: sales, operations, plan
34. The timing and size of production quantities for each product in the product family is specified by
the:
a. master production schedule.
b. material requirements plan.
c. resource plan.
d. scheduling plan.
Answer: a
35. The plans for the components, purchased materials, and workstations are developed in the:
a. master production scheduling process.
b. material requirements planning process.
c. scheduling process.
d. constraint management process.
Answer: b
Keywords: material, requirement, plan, MRP
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best?
a. Distribution and marketing provide labor-market conditions.
b. Engineering provides product designs.
c. Operations provides storage capacity.
d. Human resources provides labor standards.
Answer: b
best?
a. Materials provides storage capacity.
b. Human resources provides training capacity.
c. Distribution and marketing provide competitor capacity.
d. Operations provides machine capacity.
Answer: c
Difficulty: Easy
Keywords: production, staffing, sales, plan, input, distribution
38. The meaning of undertime is:

a. employees work as usual, but they are paid at a lower rate.
b. employees don’t have enough productive work for the number of hours that they normally work.
c. employees work more than normal hours, but they are not compensated.
d. the workweek of some employees is permanently reduced.
Answer: b
Keyword: undertime
39. Which one of the following is NOT a typical objective of production and staffing plans?
a. Minimize costs
b. Maximize customer service
c. Minimize equipment utilization
d. Minimize changes in workforce levels
Answer: c
408
40. Which one of the following statements concerning typical objectives of production and staffing plans
is best?
a. Improved on-time delivery also means minimizing inventory investment.
b. Minimizing costs will also minimize changes in the workforce levels.
c. Maximizing profits also minimizes inventory investment.
d. Increasing workforce levels may cause lower productivity because new employees typically need
time to become fully productive.
Answer: d
a. Reactive alternatives are actions that adjust demand patterns.
b. All functional areas should supply inputs for developing production and staffing plans.
c. The production plan specifies the timing and size of production quantities for each product in the
product families.
d. The staffing plan is to service organizations what competitive priorities are to manufacturing
organizations.
Answer: b
42. The intermediate link between the business plan and the MPS is the:
a. annual plan.
b. production plan.
c. financial plan.
d. workforce schedule.
Answer: b
Keywords: business, plan, MPS, master, production, schedule
43. Which one of the following statements concerning reactive alternatives is best?
a. Subcontracting can help overcome short-term capacity shortages by offloading work on other
producers.
b. Creating anticipation inventory increases customization and is particularly favored in the service
industry.
c. Adjusting workforce levels is preferred when the workforce is skilled and the labor pool is small.
d. Using overtime capacity usually improves worker productivity.
Answer: a
Keywords: reactive, alternative
409
44. A TV repair service company has a seasonal demand for its service, and there is a general shortage of
skilled TV repairpersons. Which one of the following is a REACTIVE production-planning
alternative suitable for this situation?
a. Hire and lay off workers to match the demand requirements.
b. Increase the backlog for short-term demand surges.
c. Offer reduced prices during the slack season.
d. Build anticipation inventories.
Answer: b
Keywords: reactive, alternative, backlog
45. Two basic types of decision alternatives are used to arrive at acceptable production or staffing plans:
reactive alternatives and aggressive alternatives. If an organization that faces seasonal demand uses a
reactive approach, which one of the following actions is it most likely to implement?
a. Introduction of complementary products
b. Creating a stock of anticipation inventory
c. Advertising to generate demand during off-peak periods
d. Discounting products in off-peak periods
Answer: b
Keywords: reactive, alternative, anticipation, inventory
46. Which one of the following is an aggressive alternative for sales and operations planning?
a. Use seasonal inventories to buffer the manufacturing process from variations in customer demand.
b. Offer complementary products or services with contracyclical demand requirements.
c. Use overtime and undertime to change workforce levels.
d. Use subcontracting to overcome short-term capacity shortages.
Answer: b
Keywords: reactive, alternative, aggressive, alternative
47. A company is attempting to cope with seasonal demand patterns using an aggressive alternative.
Which one of the following will NOT help achieve this aim?
a. Complementary products or services
b. Adjusting workforce levels
c. Promotional campaigns
d. Creative pricing
Answer: b
Keywords: reactive, alternative, aggressive
410
48. Which one of the following statements is best?

a. Aggressive alternatives adjust demand patterns, whereas reactive alternatives change in response to
changes in demand.
b. Overtime and undertime are two ways to change the workforce level rather than its utilization.
c. Subcontracting during the peak season is called an aggressive strategy because it requires a
competitive orientation toward suppliers.
d. Due to the almost limitless number of possible sales and operations plans, it is virtually impossible
to select a desirable plan without using an optimization procedure such as linear programming.
Answer: a
Keywords: reactive, alternative, aggressive
49. Which one of the following conditions favors a level strategy for manufacturing firms?
a. High availability of workers
b. Short shelf life of inventory
c. Highly automated equipment and a make-to-stock strategy
d. High inventory-holding cost
Answer: c
Keywords: level, sales, operations, plan
50. Which one of the following statements regarding production and staffing plans is best?
a. Hallmark, a producer of greeting cards, uses a level strategy that is made possible by worker
flexibility.
b. The production plan outlines time-phased production rates, workforce levels, and inventories
without considering capacity limitations.
c. A decision to vertically integrate is one of the possible aggressive alternatives a firm may employ
when operating under uneven demand conditions.
d. An advantage of employing aggressive alternatives is that creative pricing and promotional
campaigns increase the contribution margin.
Answer: a
51. An aggressive advertising campaign was credited with K-Tel’s inability to keep K-Fed’s latest CD on
the shelves. K-Tel continued to accept orders and promised to ship as soon as they could burn new
discs. Customers weren’t happy, but were willing to wait. This unfortunate situation can be described
as a:
a. stockout.
b. backlog.
c. backorder.
d. lost sale.
Answer: c
Keywords: backorder
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52. I eased my Belvedere into Nick’s Gas Station. The way the attendant ran out to meet me made me
think that the hammering I heard wasn’t from the 15 martinis I had the night before, but from the
worn out engine underneath the hood. The car was running on fumes; if I didn’t get a fill-up quick,
I’d need to breathe into the tank to keep going. The “Out of Gas” sign hit me like a slug from a 38,
but I didn’t stick around to ask any questions, I headed over to Mack’s Gas and Diner for a fill up, a
bowl of chili, and a double scotch to help me forget about:
a. the backorder at Nick’s
b. the backlog at Nick’s
c. the dame that asked me to look for her husband.
d. the stockout at Nick’s
Answer: d
Keywords: stockout
53. Which one of the following statements on sales and operations planning is best?
a. Creative pricing is an example of an aggressive sales and operations-planning strategy.
b. Chase strategies are always the lowest cost alternative but are often not chosen because of other
factors.
c. Hallmark relies mainly on an aggressive sales and operations planning strategy to cope with
uneven demand.
d. A mixed strategy is one that “mixes” the demand of complementary products to level the aggregate
demand rate.
Answer: a
Keywords: sales, operations, plan, creative, pricing, aggressive
a. When a firm wants to minimize its inventory investment, it should use a level production-planning
strategy.
b. When a firm wants to emphasize stability in its workforce, it should adopt a level production-
planning strategy.
c. A make-to-stock production plan that wants to emphasize plant utilization should adopt a chase
production strategy.
d. A make-to-stock production plan that wants to minimize changes in production rates should adopt
a chase production-planning strategy.
Answer: b
Difficulty: Hard
Keywords: level, sales, operations, plan, stable
55. Which one of the following conditions can make a level strategy the most attractive?
a. The cost of changing the workforce levels is low.
b. Products complementary to the existing products can be produced easily with the given facilities.
c. The shelf life of the goods being produced is limited.
d. Inventory-holding costs are high.
Answer: b
Difficulty: Hard
Keywords: level, complementary, product
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56. Which one of the following statements concerning sales and operations planning alternatives is best?
a. Building anticipation inventory during the slack season is an aggressive alternative a firm can
follow to satisfy seasonal demand patterns.
b. Adjusting workforce levels is an attractive reactive alternative when the cost of training and
unemployment compensation is high.
c. Creating anticipation inventory has the advantage of increasing customization.
d. Using overtime is an undesirable option when the overtime wage premium is high and sustained
levels of top worker productivity are important.
Answer: d
Difficulty: Hard
Keywords: sales, operations, planning, overtime
57. Which one of the following reactive alternatives would typically be best to implement a chase
strategy for a manufacturing firm?
a. Use creative pricing to modify demand.
b. Build anticipation inventory to absorb the variability in demand.
c. Increase overtime to satisfy peaks in demand.
d. Use promotional campaigns to boost demand.
Answer: c
Keywords: chase, strategy, overtime
58. Which one of the following actions applies to a level strategy?

a. Hire workers to increase production output to match increases in demand requirements.
b. Build anticipation inventory to meet the variability in demand.
c. Decrease production output to match any decreases in demand requirements.
d. Use promotional campaigns to boost demand.
Answer: b
Keywords: level, strategy, anticipation, inventory
59. The sales and operations planning strategy to be used should be consistent with the environment.
Which one of the following pairs of environment and strategy is consistent?
a. Skilled labor in short supply; adjust workforce levels
b. Low inventory-holding cost; build anticipation inventory
c. Ample labor supply; increase backlog for short-term demand surges
d. Seasonal requirements and ample, unskilled labor supply; subcontracting
Answer: b
Keywords: sales, operations, planning, inventory, anticipation
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60. Which one of the following statements about costs of sales and operations plans is best?
a. Overtime wages are typically 50% of regular time, exclusive of fringe benefits.
b. The cost of capital is not generally included in the inventory-holding cost.
c. Fringe benefits, which are a part of regular-time costs, do not typically include health insurance and
paid vacations.
d. Hiring costs include the costs of advertising jobs, interviews, training programs for new employees,
and initial paperwork.
Answer: d
Reference: The Planning Process
Keywords: sales, operations, plan, hiring
61. Which of the following is the best example of a physical constraint on the sales and operations plan?
a. Inventory storage space
b. Level of backorders
c. Use of overtime
d. Safety stock levels
Answer: a
Reference: The Planning Process
Keywords: sales, operations, plan, physical, constraint
Table 14.1
Bahouth Enterprises produces a variety of hookahs for clients around the globe. Their small
plant has a highly flexible workforce that can switch between products seamlessly. They
forecast using a six-month planning period and have a demand forecast as shown in the
table. The per-unit costs for each output option the sales and operations planner has at his
disposal are indicated in the table. Regular output costs $40 per unit, part-time production is
$50 per unit, overtime production is $60 per unit, and subcontracting is $70 per unit.
Holding inventory from one month to the next costs $2 per unit per month and a backlog
costs $5 per unit per month. Regular plant capacity is 300 units per month.
Period 1 2 3 4 5 6 Total
Forecast 400 350 500 400 500 200 2,350
Output
Regular $40 1,800
Part Time $50 0
Overtime $60 0
Subcontract $70 0
Inventory
Beginning 0
Ending $2
Average 0
Backlog $5 2,250
Costs
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62. Use the information in Table 14.1. If the planner decides to adopt a chase plan for the planning
period, what will the regular output be for month 1?
a. 300 units
b. 350 units
c. 400 units
d. 450 units
Answer: a
Difficulty: Easy
Keywords: chase, sales, operations, plan
63. Use the information in Table 14.1. If the planner decides to adopt a level plan for the planning period,
what will the total output be for month 3?
a. Between 350 and 400 units
b. Between 400 and 450 units
c. Between 450 and 500 units
d. More than 500 units
Answer: a
Difficulty: Easy
64. Use the information in Table 14.1. If the planner decides to adopt a level plan for the planning period,
what will the regular output be for month 3?
d. Between 410 and 450 units
Answer: a
Difficulty: Easy
65. Use the information in Table 14.1. If the plant has no limits on the number of units produced by part
time, overtime, or subcontractors, what is the lowest-cost chase plan that is possible for the six-month
period?
a. Less than $50,000
b. Between $50,000 and $100,000
c. Between $100,000 and $150,000
d. Between $150,000 and $200,000
Answer: c
Keywords: sales, operations, chase, plan
415
66. Use the information in Table 14.1. The plant has no limits on the number of units produced by part
time, overtime, or subcontractors and adopts a chase plan strategy for the six-month planning period.
What is the cost for month 6 of their chase plan?
a. $8,000
b. $9,852
c. $11,317
d. $12,631
Answer: a
Keywords: sales, operations, plan, chase
67. Use the information in Table 14.1. The plant has no limits on the number of units produced by part
time, overtime, or subcontractors and adopts a level plan strategy for the six-month planning period.
What is the cost for month 6 of their level plan?
a. Between $16,200 and $16,300
b. Between $16,300 and $16,400
c. Between $16,400 and $16,500
d. Between $16,500 and $16,600
Answer: d
Keywords: sales, operations, plan, level
68. Use the information in Table 14.1. The plant can make, at most, 50 units each using part time,
overtime, and subcontractors and adopts a level plan strategy for the six-month planning period. What
is the cost for their level plan over the entire six-month planning period?
a. Between $100,500 and $102,500
b. Between $102,500 and $104,500
c. Between $104,500 and $106,500
d. Between $106,500 and $108,500
Answer: a
Difficulty: Hard
Keywords: sales, operations, level, plan
overtime, and subcontractors and adopts a chase plan strategy for the six-month planning period.
Backlogs and ending inventory are permitted. What is the cost for their chase plan over the entire six-
month planning period?
a. Between $101,000 and $103,000
b. Between $103,000 and $105,000
c. Between $105,000 and $107,000
d. Between $107,000 and $109,000
Answer: b
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overtime, and subcontractors and adopts a level plan strategy for the six-month planning period. What
is the cost for their level plan during month 2?
a. Between $14,500 and $15,500
b. Between $15,500 and $16,500
c. Between $16,500 and $17,500
d. Between $17,500 and $18,500
Answer: c
Keywords: sales, operations, plan, level
Table 14.2
Bart Incorporated manufactures rotary air fans and uses a production-planning horizon of one-half
year. It allows for regular time, part time, overtime, and subcontracting production to meet the
demand but no more than 12 units may be made by each of these methods. Both anticipation
inventory and backorders are allowed. The beginning (or current) inventory is 20 units. Their first
attempt at a sales and operations plan has resulted in the following.
Forecast 100 125 120 80 75 70 570
Output
Regular 80 80 80 80 80 80 480
Part Time 12 12 12 12 12 12 72
Overtime 0 0 0 0 0 0 0
Subcontract 0 0 0 0 0 0 0
Inventory
Beginning 20 12 0 0 0 0
Ending 12 0 0 0 0 2
Backlog 0 21 49 37 20 0 127
Costs:
Regular $5 400 400 400 400 400 400 $2,400
Part Time $6 72 72 72 72 72 72 $432
Overtime $7.5 0 0 0 0 0 0 $0
Subcontract $8 0 0 0 0 0 0 $0
Inventory $5 80 30 0 0 0 5 $115
Back orders $20 0 420 980 740 400 0 $2,540
Total $552 $922 $1,452 $1,212 $872 $477 $5,487
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71. Use the information in Table 14.2. According to the production plan, what will be the total ending
inventory in the second month after the second month’s demand is satisfied?
a. -21 units
b. 0 units
c. 21 units
d. This cannot be determined from the information provided.
Answer: a
Keywords: sales, operations, plan inventory
72. Use the information in Table 14.2. If the firm is committed to the regular production and overtime
production as shown, what level of anticipation inventory would be needed at the start of the first
month to result in an ending inventory of zero after month 6?
a. 9 or fewer units
b. 10 units to 17 units
c. 18 units to 25 units
d. 25 units to 32 units
Answer: c
Keywords: anticipation, inventory, sales, operations, plan
73. Use the information in Table 14.2. According to the production plan, what is the unused overtime
capacity in the fourth period?
a. 0
b. 4
c. 9
d. 12
Answer: d
Difficulty: Easy
Keywords: overtime, capacity, sales, operations, plan
74. Use the information in Table 14.2. Which of these changes would result in the greatest improvement
(in terms of total cost) for the production plan?
a. Increase anticipation inventory to 30 units at the start of the first month.
b. Reduce anticipation inventory to 18 units at the start of the first month.
c. Increase anticipation inventory to 40 units at the start of the first month.
d. Reduce anticipation inventory to 10 units at the start of the first month.
Answer: c
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a. Produce an additional 12 units using overtime in the first month.
b. Produce an additional 12 units using subcontracting in the second month.
c. Produce an additional 12 units using overtime in the third month.
d. Produce an additional 12 units using subcontracting in the fourth month.
Answer: b
Difficulty: Hard
Keywords: subcontracting, sales, operations, plan
a. Increase anticipation inventory to 30 units at the start of the first month.
b. Produce an additional 12 units using subcontracting in the second month.
c. Produce an additional 12 units using overtime in the second and third months.
d. Reduce anticipation inventory to zero units at the start of the first month.
Answer: c
Difficulty: Hard
Keywords: sales, operations, plan, anticipation, inventory, overtime
77. Use the information in Table 14.2. If anticipation inventory is increased to 30 units at the start of the
first month, what is the inventory carrying cost over the entire planning period?
a. $115
b. $145
c. $185
d. $215
Answer: d
78. Use the information in Table 14.2. Which of these trade-offs works to your greatest advantage in
terms of reducing costs over the entire planning period?
a. Produce units using part-time workers instead of regular-time workers.
b. Begin with a larger anticipation inventory to avoid backorders completely.
c. Use no overtime, subcontracting, or part time in favor of a level regular-capacity plan.
d. Begin the planning period with 570 units of anticipation inventory and produce nothing in the
planning period.
Answer: b
Keywords: sales, operations, planning, anticipation, inventory
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79. Use the information in Table 14.2. If anticipation inventory were 30 units at the start of the first
month, what would the backorder cost be in the fourth month?
a. $840
b. $740
c. $640
d. $540
Answer: d
80. Use the information in Table 14.2. What would be the total plan cost if no more than five units each
could be made each month by part-time, overtime, and subcontracted workers?
a. $4,920
b. $4,822
c. $4,775
d. $4,550
Answer: c
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Table 14.3
The Harper Company is in the process of production planning for the next four quarters. The
company follows a policy of a stable workforce and uses overtime and subcontracting to meet
uneven forecasted demand. Anticipation inventory is also allowed, but not backorders. The
beginning (or current) inventory is 25 units. As a managerial policy, the firm also wishes to
have an ending inventory of five units at the end of the fourth quarter.
Period Unused Total
Alternatives 1 2 3 4 5 6 Capacity Capacity
Beginning 0.00 2.00 4.00 6.00
Inventory 25 0 25
Regular 10.00 12.00 14.00 16.00
Time 13 2 - 15
- - - -
1 Overtime 11.00 13.00 15.00 17.00
5 5
- - - - - -
Subcontract 12.00 14.00 16.00 18.00
5 5
- - - - - -
Regular 999.00 10.00 12.00 14.00
Time 15 - 15
- - - - -
2 Overtime 999.00 11.00 13.00 15.00
5 - 5
- - - - -
Subcontract 999.00 12.00 14.00 16.00
1 4 5
- - - - -
Regular 999.00 999.00 10.00 12.00
Time 15 - 15
- - - - -
3 Overtime 999.00 999.00 11.00 13.00
5 - 5
- - - - -
Subcontract 999.00 999.00 12.00 14.00
5 - 5
- - - - -
Regular 999.00 999.00 999.00 10.00
Time 15 - 15
- - - - -
4 Overtime 999.00 999.00 999.00 11.00
5 - 5
- - - - -
Subcontract 999.00 999.00 999.00 12.00
5 - 5
81. Use the information in Table 14.3. What is the total cost of the optimal production plan?
a. Less than or equal to $1,000
b. Greater than $1,000 but less than or equal to $2,000
c. Greater than $2,000 but less than or equal to $3,000
d. Greater than $3,000
Answer: a
421
82. Use the information in Table 14.3. What is the anticipation inventory at the end of the first quarter?
a. 0 units
b. 1 through 5 units
c. 6 through 10 units
d. 11 units and above
Answer: b
Keywords: sales, operations, plan, anticipation, inventory
83. Use the information in Table 14.3. According to the optimal production plan, what is the total ending
inventory in the second quarter? Assume that the plan that uses the least amount of subcontracting is
used.
a. One unit
b. Two units
c. Three units
d. Greater than three units
Answer: d
Keywords: sales, operations, plan, subcontracting
84. Use the information in Table 14.3. According to the optimal production plan, what is the overtime
production in the second quarter?
a. Two units
b. Three units
c. Four units
d. Five units
Answer: d
Keywords: sales, operations, plan, overtime
85. Use the information in Table 14.3. Given the information in the optimal tableau, what is the demand
forecast for quarter 2?
a. Fewer than 30 units
b. Greater than 30 units but fewer than or equal to 35 units
c. Greater than 35 units but fewer than or equal to 40 units
d. Greater than 40 units
Answer: a
Keywords: sales, operations, plan, demand, forecast
422
Answer: b
Difficulty: Hard
87. Use the information in Table 14.3. Given the information in the optimal tableau, what is the inventory
carrying cost, in dollars per unit per quarter?
a. Less than $1
b. Greater than $1 but less than or equal to $2
c. Greater than $2 but less than or equal to $3
d. Greater than $3
Answer: b
Keywords: sales, operations, plan, inventory, cost
88. Use the information in Table 14.3. Given the information in the optimal tableau, what is the
subcontracting cost, in dollars per unit?
a. $5
b. $7
c. $10
d. $12
Answer: d
89. The transportation method of production planning is a special case of:

a. linear programming.
b. integer programming.
c. queuing theory.
d. goal programming.
Answer: a
Difficulty: Easy
Keywords: transportation, method, linear, programming
423
90. Which statement about the transportation method of sales and operations planning is best?
a. The transportation method is more suitable for service providers’ staffing plans than for
manufacturers’ production plans.
b. Workforce levels for each period are outputs from the transportation method.
c. Workforce levels for each period are inputs to the transportation method.
d. Use of the transportation method is easier than spreadsheet models since a demand forecast is not
needed.
Answer: c
Difficulty: Easy
Keywords: transportation, method
91. Which of the following cost considerations is appropriate for application of the transportation
method?
a. A manufacturer uses a standard delivery truck for shipments of up to 20 cases but can use a semi-
truck for shipments of 21 to 200 cases and rail for shipments in excess of 200 cases.
b. For every unit produced, the manufacturer will pay about $2 in wages.
c. Producing both products A and B results in some synergy that creates by-product C that can be sold
for additional revenue.
d. The workforce is amazingly loyal and will often work through lunch hour and stay an hour or two
late, off the clock, as needed to get the quota out.
Answer: b
Keywords: transportation, method
424
Table 14.4
Tanfastic, Inc., a manufacturer of swimwear, is in the process of developing a production plan
for the coming spring break. The ending inventory for January is 30 units, and the company
wishes to have 80 units at the end of May.
Month Unused Total

Alternatives 1 (Feb) 2 (Mar) 3 (April 4 (May) Capacity Capacity
Beginning 0 3 6 9
Inventory 30 0 30
Regular $10 $13 $16 $19
Time 120 180 - - - 300
1 Overtime $15 $18 $21 $24
- - - - 60 60
Subcontract $999 $1,002 $1,005 $1,008
- - - - - 0
Regular $999 $10 $13 $16
Time - 270 - 80 - 350
2 Overtime $999 $15 $18 $21
- - - - 90 90
Subcontract $999 $999 $1,002 $1,005
- - - - - 0
Regular $999 $999 $10 $13
Time - - 350 - - 350
3 Overtime $999 $999 $15 $18
- - 80 - - 80
Subcontract $999 $999 $999 $1,002
- - - - - 0
Regular $999 $999 $999 $10
Time - - - 300 - 300
4 Overtime $999 $999 $999 $15
- - - 50 - 50
Subcontract $999 $999 $999 $999
- - - - - 0
Requirements 150 450 430 430 150 1610
The transportation method has been used to develop a suitable aggregate plan. The optimal
production plan, given the demand forecasts, costs, and capacities, is listed above. Given this
tableau solution, answer the following questions.
92. Use the information in Table 14.4. According to this plan, what will be the ending inventory in
February after February demand is satisfied?
a. Fewer than or equal to 100
b. Greater than 100 but fewer than or equal to 200
c. Greater than 200 but fewer than or equal to 300
d. Greater than 300
Answer: b
Keywords: sales, operations, plan, ending, inventory
425
93. Use the information in Table 14.4. What is the total cost for the optimal production plan?
Answer: c
Keywords: sales, operations, plan, total, cost
94. Use the information in Table 14.4. Given the information in the optimal tableau, which statement
about subcontracting is best?
a. It should not exceed more than 10 units in any month.
b. It should not exceed more than 30 units in any month.
c. It should not exceed more than 90 units in any month.
d. It is not allowed in this solution.
Answer: d
d. Greater than 390
Answer: b
Difficulty: Hard
96. Use the information in Table 14.4. Given the information in the optimal tableau, what is the inventory
carrying cost, in dollars per unit per quarter?
a. Less than $1
d. Greater than $3
Answer: c
Keywords: sales, operations, plan, inventory, carrying, cost
426
97. Use the information in Table 14.4. Given the information in the optimal tableau, what is the overtime
cost in dollars per unit?
a. Less than $12
d. Greater than $16
Answer: c
Keywords: sales, operations, plan, overtime, cost
Table 14.5
A chemical plant manufactures one type of product with either regular production time or
planned overtime. The initial inventory of this product is 90 units. The desired ending inventory
at the end of the four-month planning horizon is 100 units.
Month Unused Total

Alternatives 1 2 3 4 Capacity Capacity
Beginning 0 1 2 3
Inventory 90 0 90
Regular $5 $6 $7 $8
Time 90 60 - - - 150
1 Overtime $8 $9 $10 $11
20 - - - 30 50
Regular $999 $5 $6 $7
Time - 90 - 60 - 150
2 Overtime $999 $8 $9 $10
- 40 - - - 40
Regular $999 $999 $5 $6
Time - - 150 50 - 200
3 Overtime $999 $999 $8 $9
- - 60 - - 60
Regular $999 $999 $999 $5
Time - - - 180 - 180
4 Overtime $999 $999 $999 $8
- - - 30 - 30
Requirement 200 190 210 320 30 950

s
The transportation method has been used to develop a suitable aggregate plan. The optimal
production plan, given the demand forecasts, costs, and capacities, is listed above. Given this
tableau solution, answer the following questions.
427
98. Use the information in Table 14.5. According to the optimal production plan, how many units will be
produced using period 2 regular-time capacity?
a. Fewer than or equal to 50 units
b. Greater than 50 but fewer than or equal to 100 units
c. Greater than 100 but fewer than or equal to 200 units
Answer: c
Keywords: sales, operations, plan, regular, capacity
99. Use the information in Table 14.5. According to the optimal production plan, what will be the ending
inventory in period 2 after the demand for period 2 has been satisfied?
a. Fewer than or equal to 40 units
b. Greater than 40 but fewer than or equal to 80 units
c. Greater than 80 but fewer than or equal to 120 units
Answer: b
Answer: a
demand forecast for quarter 2?
Answer: a
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Answer: b
inventory carrying cost, in dollars per unit per quarter?
a. $1
d. Greater than $3
Answer: a
Keywords: sales, operations, plan, carrying, cost, inventory
overtime cost in dollars per unit?
a. Less than $5
d. Greater than $9
Answer: c
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Table 14.6
A manufacturer of automobile tires uses either regular-time production or planned production.
The initial inventory is 50 units, and the desired ending inventory for the four-quarter planning
horizon is also 50 units.
Quarter Unused Total

Beginning 0 3 6 9
Inventory 50 0 50
Regular $10 $13 $16 $19
Time 250 140 10 - - 400
1 Overtime $15 $18 $21 $24
- - - - 75 75
Regular $999 $10 $13 $16
Time - 200 - - - 200
2 Overtime $999 $15 $18 $21
- 60 - - 10 70
Regular $999 $999 $10 $13
Time - - 200 - - 200
3 Overtime $999 $999 $15 $18
- - 40 - - 40
Regular $999 $999 $999 $10
Time - - - 300 - 300
4 Overtime $999 $999 $999 $15
- - - 50 - 50
Requirement 300 400 250 350 85 1385

s
The transportation method has been used to develop a suitable sales and operations plan. The
optimal production plan, given the demand forecasts, costs, and capacities, is listed above.
Given this tableau solution, answer the following questions.
105. Use the information in Table 14.6. According to the optimal production plan, what is the total
cost of this production plan?
Answer: d
430
106. Use the information in Table 14.6. According to the optimal production plan, what is the unused
overtime capacity of period 2?
a. Zero units
b. Greater than zero units but fewer than or equal to four units
c. Greater than four units but fewer than or equal to eight units
d. Greater than eight units
Answer: d
Keywords: sales, operations, plan, overtime, capacity
107. Use the information in Table 14.6. According to the optimal production plan, what is the total
inventory at the end of the first quarter after the demand for the first quarter has been officially
satisfied?
a. 0 units
b. 30 units
c. 150 units
d. 250 units
Answer: c
Keywords: sales, operations, plan, inventory
Answer: d
Answer: b
431
inventory carrying cost in dollars per unit per quarter?
a. $1
d. Greater than $3
Answer: c
a. Less than $5
d. Greater than $9
Answer: d
432
Table 14.7
Health First is a manufacturer of medical devices shipped worldwide. It can meet its demand
by using regular-time production and planned overtime. The initial inventory is 200 units, and
the desired ending inventory for the four-quarter planning horizon is 150 units.

Beginning 0 10 20 30
Inventory 200 0 200
Regular $30 $40 $50 $60
Time 1,500 - - - - 1500
1 Overtime $45 $55 $65 $75
100 - - - 200 300
Regular $9,999 $30 $40 $50
Time - 1,000 500 - - 1500
2 Overtime $9,999 $45 $55 $65
- 300 - - - 300
Regular $9,999 $9,999 $30 $40
Time - - 1,500 - - 1500
3 Overtime $9,999 $9,999 $45 $55
- - 300 - - 300
Regular $9,999 $9,999 $9,999 $30
Time - - - 1,500 - 1500
4 Overtime $9,999 $9,999 $9,999 $45
- - - 250 50 300
Requirement 1800 1300 2300 1750 250 7400

s
optimal production plan, given the demand forecasts, costs, and capacities, is listed above.
Given this tableau solution, answer the following questions.
112. Use the information in Table 14.7. According to the optimal production plan, what is the ending
inventory in the second quarter after the demand for the second quarter has been satisfied?
a. 200 units
b. 300 units
c. 400 units
d. 500 units
Answer: d
433
113. Use the information in Table 14.7. According to the optimal production plan, what is the
overtime production in quarter 4?
a. 50 units
b. 150 units
c. 250 units
d. 300 units
Answer: c
Keywords: sales, operations, plan, overtime
114. Use the information in Table 14.7. According to the optimal production plan, what is the unused
overtime capacity in quarter 1?
a. 0 units
b. 100 units
c. 200 units
d. 300 units
Answer: c
Keywords: sales, operations, plan, overtime, capacity
Answer: d
a. Fewer than or equal to 1,500 units
b. Greater than 1,500 units but fewer than or equal to 1,700 units
c. Greater than 1,700 units but fewer than or equal to 1,900 units
d. Greater than 1,900 units
Answer: a
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a. Fewer than or equal to 1,600 units
b. Greater than 1,600 units but fewer than or equal to 1,650 units
c. Greater than 1,650 units but fewer than or equal to 1,700 units
d. Greater than 1,700 units
Answer: a
inventory carrying cost, in dollars per unit per quarter?
a. Less than $3
d. Greater than $9
Answer: d
a. Less than $30
d. Greater than $40
Answer: d
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Table 14.8
Archie Toys is a retailer operating out of Wichita, Kansas. It experiences a seasonal demand
pattern for its services. Labor requirements over a typical six-month period follow. The
workforce requirements (expressed as number of employees) are given in the following table for
the next six periods.
Month
1 2 3 4 5 6 Total
Requirement 6 7 12 13 8 5
Workforce level
Undertime
Overtime
Productive time
Hires
Layoffs
Costs
Productive time
Undertime
Overtime
Hires
Layoffs
Total
Costs associated with operations are as follows:

Wages = $800 per worker per month
Hiring cost = $300 per worker
Layoff cost = $200 per worker
The current workforce level is nine workers, and the undertime is paid for. Use the spreadsheet
approach and the preceding data to answer the following questions.
120. Use the information in Table 14.8. The total cost of the staffing plan, including the cost of
regular wages, hiring, and layoffs using a chase strategy with hiring and layoffs but no overtime, is:
a. less than or equal to $42,000.
b. greater than $42,000 but less than or equal to $43,000.
c. greater than $43,000 but less than or equal to $44,000.
d. greater than $44,000.
Answer: d
Keywords: sales, operations, plan, staffing, total, cost, chase
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121. Use the information in Table 14.8. The total cost of the staffing plan, using a level strategy in
which no overtime is allowed and the undertime paid for, is:
Answer: b
Keywords: sales, operations, plan, staffing, total, cost, level
122. Use the information in Table 14.8. Suppose that overtime is allowed up to 25% of the regular-time
capacity, and that overtime wages are 150% of the regular-time rate. The total cost of the level
strategy with overtime and undertime, which also minimizes undertime, is:
Answer: a
Keywords: sales, operations, plan, staffing, total, cost, level, undertime
437
Table 14.9
Padco Production makes a variety of oilfield tooling and supplies and develops a sales and
operations plan on a rolling six-month basis. Their production costs are as follows:
Regular Production $10 per unit, Part-Time Production $12 per unit, Overtime Production $15
per unit, Subcontracting $18 per unit. It costs $1 to hold a unit in inventory for a month and
$100 per unit for a backorder. Plant capacity is 325 units per month.
Forecast 250 350 350 450 500 500 2,400
Output
Regular
Part Time
Overtime
Subcontract
Output -
Forecast
Inventory
Beginning 0
Ending
Average
Backorder
Costs:
Regular $10
Part Time $12
Overtime $15
Subcontract $18
Backorder $100
Ending Inv $1
123. Use the information in Table 14.9. If the plant uses a level plan with only its regular productive
capacity, what is its ending inventory at the end of period 2 for the lowest-cost plan?
a. -25 units
b. 0 units
c. 25 units
d. 50 units
Answer: d
438
124. Use the information in Table 14.9. If the plant uses a level plan with only its regular productive
capacity, what is its inventory holding (not including backorders) cost for the entire six-month
planning period?
a. $0
b. Between $0 and $100
c. Between $100 and $200
d. Between $200 and $300
Answer: c
Keywords: sales, operations, plan, inventory
125. Use the information in Table 14.9. If the plant uses a chase plan, what is its plan cost for the first
month?
a. $3,250
b. $3,000
c. $2,750
d. $2,500
Answer: d
Difficulty: Easy
126. Use the information in Table 14.9. If the company has an inventory of 100 units at the start of the
planning period and wishes to maintain that level of ending inventory throughout the entire planning
period, what should its regular production be in period 4 if it adopts a chase strategy?
a. 550 units
b. 450 units
c. 425 units
d. 325 units
Answer: d
Keywords: chase, sales, operations, plan
planning period and wishes to end the six-month planning period with zero units in ending inventory,
what should its overtime production be if it adopts a level output strategy and seeks to minimize
costs? Part time and overtime production have unlimited capacity.
Answer: a
Keywords: level, output, sales, operations, plan
439
planning period and wishes to end the six-month planning period with zero units in ending inventory,
what should its ending inventory be at the end of period 3 if it adopts a level output strategy and seeks
to minimize costs?
Answer: c
Keywords: inventory, level, aggregate
129. Use the information in Table 14.9. If the company is limited each period to 40 units produced by
overtime, 40 units produced by subcontracting, and 40 units produced by part time, what is the total
production by overtime if the firm adopts a level output strategy and seeks to minimize costs?
a. 35 units
b. 40 units
c. 12 units
d. 240 units
Answer: c
Difficulty: Hard
130. Use the information in Table 14.9. If the company is limited to 30 units, each produced by overtime,
subcontracting, and part time, what is the total cost of subcontracting production if the firm adopts a
level output strategy and seeks to minimize costs?
a. $2,160
b. $2,700
c. $1,620
d. $900
Answer: c
subcontracting, and part time, what is ending inventory at the end of period 4 if the firm adopts a
level output strategy and seeks to minimize costs?
a. 130 units
b. 165 units
c. 200 units
d. 235 units
Answer: b
Keywords: inventory, level, sales, operations, plan
440
subcontracting, and part time, what is ending inventory at the end of the planning period if the firm
adopts a level output strategy and seeks to minimize costs?
a. 50 units
b. 25 units
c. -25 units
d. -50 units
Answer: d
Keywords: backlog, sales, operations, plan, inventory
Table 14.10
A large distribution center uses some part-time employees in its workforce. Each part-time
employee works a maximum of 80 hours per month. The workforce requirements (expressed
as the number of part-time employees working the maximum regular time of 80 hours per
month) are given in the following table for the next six periods.
Month
1 2 3 4 5 6 Total
Requirement 50 50 75 75 50 50
Workforce level
Undertime
Overtime
Productive time
Hires
Layoffs
Costs
Productive time
Undertime
Overtime
Hires
Layoffs
Total
The relevant costs are:

Wages = $350/month/worker
Hiring cost = $100/worker
Layoff cost = $ 50/worker
Overtime cost = 150% of regular-time rate
The current workforce level is 60, and overtime cannot exceed 25% of regular-time capacity.
Use the spreadsheet approach to answer the following questions.
441
133. Use the information in Table 14.10. The total cost of the staffing plan, including the cost of regular
wages, hiring, and layoffs, using a chase strategy with hiring and layoffs but no overtime, is:
Answer: d
134. Use the information in Table 14.10. Use a level strategy with overtime and undertime. Minimize
undertime by maximizing overtime during the peak period. If the firm does not pay undertime, what
is the total cost of the staffing plan including the cost of regular wages, hiring, and layoffs?
Answer: a
Keywords: sales, operations, plan, staffing, total, cost, undertime
135. Use the information in Table 14.10. Use a chase strategy with hiring and layoffs but no overtime.
How many workers will be hired in month 3?
a. Fewer than or equal to zero
b. Greater than zero but fewer than or equal to 10
c. Greater than 10 but fewer than or equal to 20
d. Greater than 20
Answer: d
442
Table 14.11
Plugge Upholstering is developing a four month sales and operations plan to address their
forecasted demand. They believe that their demand pattern will be 250 units, 325 units, 275
units, and 250 units.
The relevant costs are:
Wages = $15/unit
Overtime cost = 133% of regular-time rate
Subcontracting cost = 166% of regular rate
They have a $10/unit/period holding cost and a $20/unit/month shortage cost. Backorders are
allowed.
A local subcontractor has capacity for 15 units per month but any extra production must come
from their own regular work force. Plugge likes to ease into overtime production, so in the
first period they can produce 15 units using overtime capacity; in subsequent periods they can
produce 20 units, 30 units, and 50 units in overtime.
Use the transportation method to answer all questions.
136. Use the information in Table 14.11. In order to create a minimal cost plan, which period is the
FIRST period you should use subcontracting for production?
a. The first period.
b. The second period.
c. The third period.
d. The fourth period.
Answer: a
Keywords: transportation, method, plan, production
137. Use the information in Table 14.11. In order to create a minimal cost plan, what is the total cost for
regular time production?
a. Over $14,000
b. Over $13,250 but less than $14,000.
c. Over $12,500 but less than $13,250.
d. Less than $12,500
Answer: b
Difficulty: Easy
138. Use the information in Table 14.11. In order to create a minimal cost plan, what is the total number
of units per period during which inventory is held?
a. Less than 40 units.
b. At least 40 but less than 43 units.
c. At least 43 but less than 46 units.
d. .46 or more units.
Answer: c
443
of units per period during which inventory is short?
a. Less than 39 units.
b. Greater than or equal to 39 but less than 42 units.
c. Greater than or equal to 42 but less than 45 units.
d. Greater than or equal to 45 units.
Answer: d
of units made using overtime?
a. Between 117.5 and 112.5 units.
b. Between 112.5 and 107.5 units.
c. Between 107.5 and 102.5 units.
d. Between 102.5 and 97.5 units.
Answer: a
of units made by the subcontractor?
a. More than 47.5 units.
b. Between 42.5 units and 47.5 units.
c. Between 37.5 units and 42.5 units.
d. Less than 37.5 units
Answer: b
FILL IN THE BLANK
142. A(n) ____________ is a statement of production rates, workforce levels, and inventory holdings
based on estimates of customer requirements and capacity limitations.
Answer: sales and operations plan
Difficulty: Easy
143. A sales and operations plan is sometimes called a(n) ____________.

Answer: aggregate plan
Difficulty: Easy
Keywords: aggregate, plan
444
144. A service firm’s sales and operations plan, called a(n) ____________, centers on staffing and other
labor-related factors.
Answer: staffing plan
Difficulty: Easy
Keywords: staffing, plan, service
145. A group of customers, services, or products that have similar demand requirements and common
process, labor, and materials requirements is called a(n) ____________.
Answer: product family
Keywords: product, family, group, customer, service, material
146. The ____________ is the length of time covered by a sales and operations plan.
Answer: planning horizon
Keywords: planning, horizon, time
147. A(n) ____________ is a projected statement of income, costs, and profits.

Answer: business plan
Keywords: business, plan
148. The ____________ is a schedule that specifies the timing and size of production quantities for each
product in the product family.
Answer: master production schedule
149. The ____________ takes the master production schedule and derives plans for components,
purchased materials and workstations.
Answer: material requirements plan
Keywords: master, production, schedule, material, requirements
150. The ____________ is a schedule that details the specific work schedule for each category of
employee.
Answer: workforce schedule
Keywords: workforce, schedule
445
151. ____________ are actions that can be taken to cope with demand requirements.
Answer: Reactive alternatives
Keywords: reactive, alternative, actions
152. ____________ is the situation that occurs when employees work longer than the regular workday or
workweek.
Answer: Overtime
Keywords: overtime, regular, time
153. ____________ takes advantage of the tangible nature of manufactured goods to absorb uneven rates
of supply and demand.
Answer: Anticipation inventory
154. ____________ is the accumulation of customer orders that have been promised for delivery at some
future date.
Answer: Backlog
Keywords: backlog, order
155. A(n) ____________ is an order that is lost and causes the customer to go elsewhere.
Answer: stockout
Keywords: stockout, order, lost
156. ____________ are actions that attempt to modify demand and, consequently, resource requirements.
Answer: Aggressive alternatives
Keywords: aggressive, alternatives, actions
157. ____________ are products or services having similar resource requirements but different demand
cycles.
Answer: Complementary products
Keywords: complementary, products, demand, cycle
446
158. Incentives such as two-for-one promotions or charging less for off-peak use of production or service
facilities is an example of ____________.
Answer: creative pricing
Keywords: creative, pricing, promotion
159. The level strategy maintains a constant ____________ level or ____________ level during the
planning horizon.
Answer: workforce, output
Keywords: level, workforce, output
160. A(n) ____________ strategy involves hiring and laying off employees to match the demand forecast
over the planning horizon.
Answer: chase
Keywords: chase, strategy
161. A(n) ____________ is a strategy that considers and implements a fuller range of reactive alternatives
and goes further than a pure chase or level strategy.
Answer: mixed strategy
Keywords: mixed, strategy, level, chase
162. The transportation method for production planning is a specialized form of ____________.
Answer: linear programming
Keywords: transportation, method, linear, programming
163. Because the sales and operations plan is stated in aggregate terms, the first step in
implementation is to ____________ the plan.
Answer: disaggregate
Reference: Managerial Considerations
Keywords: aggregate, disaggregate, sales, operations, plan
447
SHORT ANSWERS
164. What is the impact of the sales and operations plan on the human resources and finance functions of
a firm?
Answer: A sales and operations plan specifies how the company will work for the next year or so
toward its broad, long-term goals. From these medium-range plans, managers prepare detailed
operating plans. One facet of the sales and operations plan is how the labor resources of a firm
will be managed, what mix of skills will be required, and how much labor is needed. Human
Resources is aware of labor-market conditions and training capacities that might impact a firm’s
ability to hire, train, and produce. The financial function seeks ways to minimize expenses and
finance cash flows created by the sales and operations plan.
Keywords: sales, operations, plan, finance, human, resources
165. How can the workforce be aggregated?

Answer: The workforce can be aggregated in various ways depending on flexibility. If workers
are cross-trained on several products, management can consider the workforce to be a single
aggregate group even though the skills of individual workers may differ. Alternatively,
management can aggregate employees along product family lines by splitting the workforce into
subgroups and assigning a different group to the production of each product family.
Keywords: workforce, sales, operations, labor
166. What is a product family?

Answer: A product family is a group of products or services that has similar demand
requirements and common processing, labor, and materials requirements.
167. Briefly describe the difference between reactive alternatives and aggressive alternatives.
Answer: Reactive alternatives are actions that respond to given demand patterns, whereas
aggressive alternatives are actions that adjust them.
Keywords: reactive, aggressive, alternatives
168. What is a mixed-strategy approach to sales and operations planning?

Answer: A mixed strategy takes the best combination of chase and level plans to determine
output levels. As with most things, rarely is slavish adhesion to a level or chase plan the absolute
best course of action in all circumstances. A mixed strategy allows the planner to take the best of
both approaches to developing a sales and operations plan.
Keywords: mixed, sales, operations, plan
448
169. Choose any service and provide examples of how they can use a chase strategy for sales and
operations planning.
Answer: Student examples will vary, but a service typically hires temporary or seasonal workers
or uses overtime to handle fluctuations in demand. Examples include universities’ use of adjunct
faculty, agriculture’s use of migrant workers, and so on.
Keywords: service, chase, strategy
170. What are the typical objectives of the sales and operations plan?
Answer: Typical objectives of sales and operations plans include minimizing cost or maximizing
profit, maximizing customer service, minimizing inventory investment, minimizing changes in
production rates, minimizing changes in workforce levels, and maximizing utilization of plant
and equipment.
Keywords: sales, operations, plan, objectives
171. What is anticipation inventory and what are the benefits and drawbacks of having it?
Answer: Anticipation inventory is inventory used to absorb uneven rates of supply or demand. A
plant facing seasonal demand can produce at a constant rate year-round and merely store the
production during the down phase of demand. A constant level of plant utilization is easier to
manage. Anticipation inventory can be costly to hold depending on storage and spoilage rates and
the company’s cost of capital.
172. What are the reactive alternatives for sales and operations plans?
Answer: Reactive alternatives include workforce adjustment, anticipation inventory, workforce
utilization, vacation schedules, subcontractors, backlogs, backorders, and stockouts.
Keywords: reactive, alternative, aggregate
173. How is the sales and operations planning process similar to the forecasting process?
Answer: Sales and operations planning is presented as a six-step cyclical process consisting of
gathering data, demand planning, updating S&OP spreadsheets, consensus meetings, executive
S&OP meeting, and finalize and communicate, with this sixth step feeding back into the first
(data gathering) step. The process is cyclical because S&OP is done with a time horizon that
permits refinement of plans as time progresses Demand forecasts, customer orders, capacity, and
materials prices and availability that have been projected several months in advance may change
over time and in time for the production planners to take action. The forecasting process
discussed in chapter 13 is also cyclical; forecasts for several months in the future can be refined
as the target time period draws near and more is learned about the forecasting arena. Both
processes are data driven and quantitative in nature, with the output subject to adjustment by the
manager/decision-maker responsible for implementation.
Keywords: reactive, alternative, aggregate
449
174. Identify three alternative methods for solving sales and operations planning problems other than the
spreadsheet tools and the transportation method suggested in the text? What are the strengths and
weaknesses of your suggested methods?
Answer: Answers will vary, but might include expert systems, specialized software packages,
trial and error, simulation, genetic algorithms, neural networks, other artificial intelligence
approaches, and intuition. Each method will work only as well as the input provided; the forecast,
the cost information, the alternatives, and the constraints. Some methods may require more
simplifying assumptions than others in order to use the technique. Some of these methods will
require considerable expertise and training on the part of the planner and the tool itself may be
expensive. Each method could be used to arrive at workable, if not optimal plans.
Keywords: sales, operations, planning, decision, support, tools
175. Last night you plugged all of the relevant information into your new sales and operations planning
system and this morning you review the output while you sip your first cup of coffee. Your new
system employs the transportation method and the output looks great at first glance. It would have
taken you a couple of days to develop a solution and it’s doubtful that your plan would be able to fill
all of the orders at such a low cost or been as neatly laid out. Now all you have to do is to sell this
plan to your boss, who is highly suspicious of computer applications and the assumptions you made
when using the new system. You stride confidently into his office and slide the output across his
desk. Before he can mock you with his standard, “Garbage in, garbage out,” you launch into your
explanation of your assumptions and why they’re reasonable. What do you say?
Answer: Hey, that’s a great tie, is that new? By the way, I have the sales and operations plan for
the coming period and we can meet demand at minimal cost. I made a few simplifying
assumptions in using the system. My first assumption is that all the forecasts, costs and policies
are accurate and won’t change dramatically as we progress through the planning period. These
assumptions would be made whether we were using our new system or relying on the old manual
techniques we used to use. If any of these change dramatically we can always revise the plan. The
second assumption is that all of our costs, whether they are shipping, material, or labor, are
directly proportional to the output levels of the plan. In other words, we don’t achieve any
economies of scale with the levels of output this plan suggests. This is a reasonable assumption
with regards to our regular labor capacity; if we exceed capacity we will have to make use of
overtime or subcontracting or inventory. This assumption may not be as reasonable if we need a
level of raw material that might trigger a price break or if we have inbound or outbound shipping
at a level that might permit us to use a cheaper per unit method of transportation.
Keywords: sales, operations, planning, transportation
450
PROBLEMS
176. A manufacturing firm uses a level-utilization production-planning horizon of three months. They
have developed a forecast for the coming three quarters that appears in the table. They can add no
more than 10% of their production capacity as overtime and can order no more than 10% of a
month’s regular capacity via subcontractors. The company has a zero backorder policy but has space
for a maximum of 100 items in their finished-goods inventory. If all extra costs are shown in the
table, what is the minimum-cost sales and operations plan?
January February March

Demand 1100 950 1350
Regular Capacity 1000 1000 1000
Regular Production
Overtime ($40/unit)
Subcontracting ($100/unit)
Ending Inventory ($10/unit)
Cost
Answer:
Quantities appear in the upper section of the spreadsheet; costs are totaled at the bottom of each
column.
January February March

Demand 1100 950 1350
Regular Capacity 1000 1000 1000
Regular Production 1000 1000 1000
Overtime ($40/unit) 100 95 135
Subcontracting ($100/unit) 0 0 70
Ending Inventory ($10/unit) 0 145 0

Cost 4000 5250 12400

451
177. A manufacturing firm uses a production-planning horizon of four quarters. It allows for regular time,
overtime, and subcontracting production to meet the demand. Anticipation inventory is also allowed,
but not backorders. The beginning or current inventory is 20 units. As a managerial policy, the firm
also wishes to have an ending inventory of 30 units at the end of the fourth quarter.

Quarter 1 2 3 4 Capacity Capacity
Beginning 0 2 4 6
Inventory 20 0 20
Regular 20 22 24 26
Time 60 - - - - 60
1 Overtime 30 32 34 36
20 - - - - 20
Subcontract 45 47 49 51
20 - - - 20 40
Regular 20 22 24
Time - 60 - - - 60
2 Overtime 30 32 34
- 20 - - - 20
Subcontract 45 47 49
- 20 - - 20 40
Regular 20 22
Time - - 40 20 - 60
3 Overtime 30 32
- - 20 - - 20
Subcontract 45 47
- - 40 - - 40
Regular 20
Time - - - 60 - 60
4 Overtime 30
- - - 20 - 20
Subcontract 45
- - - 40 - 40

Requirements 120 100 100 140 40 500
optimal production plan, given the demand forecasts, costs, and capacities, is depicted above. Use
this optimal production plan to answer the following questions.
452
a. What will be the total ending inventory in the first quarter after the first quarter’s demand is satisfied?
b. What is the overtime production in the fourth quarter?
c. What is the unused regular-time capacity in the third quarter?
d. In which quarter(s) is(are) the subcontracting option(s) used?
e. What is the total cost of the optimal production plan?
f. What is the demand forecast for quarter 3?
g. What is the demand forecast for quarter 4?
h. What is the inventory carrying cost in dollars per unit per quarter?
i. What is the overtime cost in dollars per unit?
Answer:
a. 0
b. 40
c. 0
d. 1, 2, 3, 4
e. $12,640
f. 100
g. 110
h. $2 per unit per quarter
i. $30
453
178. A manufacturing firm uses a production-planning horizon of four quarters. It allows for regular time,
overtime, and subcontracting production to meet the demand. Anticipation inventory is also allowed,
but not backorders. The beginning or current inventory is 100 units. As a managerial policy, the firm
also wishes to have an ending inventory of 70 units at the end of the fourth quarter.
Period Unused Total

Period 1 2 3 4 Capacity Capacity
Beginning 0 10 20 30
Inventory 100 0 100
Regular 100 110 120 130
Time 350 50 - - - 400
1 Overtime 150 160 170 180
- - - - 100 100
Subcontract 200 210 220 230
- - - - 100 100
Regular 100 110 120
Time - 400 - - - 400
2 Overtime 150 160 170
- 50 - - 50 100
Subcontract 200 210 220
- - - - 100 100
Regular 100 110
Time - - 400 - - 400
3 Overtime 150 160
- - 50 - 50 100
Subcontract 200 210
- - - - 100 100
Regular 100
Time - - - 400 - 400
4 Overtime 150
- - - 100 - 100
Subcontract 200
- - - - 100 100

Requirements 450 500 450 500 600 2500
454
optimal production plan, given the demand forecasts, costs, and capacities, is depicted above. Use
this optimal production plan to answer the following questions.
a. What will be the total ending inventory in the first quarter after the first quarter’s demand is
satisfied?
b. What is the overtime production in the fourth quarter?
c. What is the unused regular-time capacity in the third quarter?
d. In which quarter(s) is(are) the subcontracting option(s) used?
e. What is the total cost of the optimal production plan?
f. What is the demand forecast for quarter 3?
g. What is the demand forecast for quarter 4?
h. What is the inventory carrying cost in dollars per unit per quarter?
i. What is the overtime cost in dollars per unit?
Answer:
a. 50
b. 100
c. 0
d. It is not used.
e. $190,500
f.450
g. 430
h. $10 per unit per quarter
i. $150
179. A retailer experiences a seasonal demand pattern for its services. Labor requirements over a
typical six-month period follow.
Period 1 2 3 4 5 6
Wages = $2,000 per worker per month
Hiring cost = $1,000 per worker
Layoff cost = $1,500 per worker
The current workforce level is 10 workers. Use the spreadsheet approach and the preceding data
to answer the following questions:
a. What is the total cost of the staffing plan, including the cost of regular wages, hiring, and layoffs
using a chase strategy with hiring and layoffs, but no overtime?
b. What is the total cost of the staffing plan, using a level strategy in which no overtime is allowed,
and the undertime paid for?
c. Suppose that overtime is allowed up to 25% of the regular-time capacity, and that overtime wages
are 150% of the regular-time rate. What is the total cost of the level strategy with overtime and
undertime, which also minimizes undertime?
455
Answer:
a.
Requirement 7 8 9 11 12 7 54
Workforce level 7 8 9 11 12 7 54
Undertime 0
Overtime 0
Vacation time 0
Subcontracting time 0
Backorders 0

Productive time 7 8 9 11 12 7 54
Inventory 0 0 0 0 0 0 0
Hires 0 1 1 2 1 0 5
Layoffs 3 0 0 0 0 5 8

Costs Totals
Productive time $14,000 16,000 18,000 22,000 24,000 14,000 $108,000
Undertime $0 0 0 0 0 0 $0
Overtime $0 0 0 0 0 0 $0
Vacation time $0 0 0 0 0 0 $0
Inventory $0 0 0 0 0 0 $0
Backorders $0 0 0 0 0 0 $0
Hires $0 1,000 1,000 2,000 1,000 0 $5,000
Layoffs $4,500 0 0 0 0 7,500 $12,000
Subcontracting $0 0 0 0 0 0 $0

Total cost $18,500 17,000 19,000 24,000 25,000 21,500 $125,000
456
b.
Requirement 7 8 9 11 12 7 54
Workforce level 12 12 12 12 12 12 72
Undertime 5 4 3 1 0 5 18
Overtime 0
Vacation time 0
Backorders 0

Inventory 0 0 0 0 0 0 0
Hires 2 0 0 0 0 0 2
Layoffs 0 0 0 0 0 0 0

Costs Totals
Productive time $14,000 16,000 18,000 22,000 24,000 14,000 $108,000
Undertime $10,000 8,000 6,000 2,000 0 10,000 $36,000
Overtime $0 0 0 0 0 0 $0
Inventory $0 0 0 0 0 0 $0
Backorders $0 0 0 0 0 0 $0
Hires $2,000 0 0 0 0 0 $2,000
Layoffs $0 0 0 0 0 0 $0

Total cost $26,000 24,000 24,000 24,000 24,000 24,000 $146,000
457
c. To minimize undertime, take maximum requirements divided by the quantity one plus the percent
of overtime allowed. In this case, 12/1.25 = 9.6, so use a plan with 10 workers.
Requirement 7 8 9 11 12 7 54
Workforce level 10 10 10 10 10 10 60
Undertime 3 2 1 0 0 3 9
Overtime 1 2 3
Vacation time 0
Backorders 0

Inventory 0 0 0 0 0 0 0
Hires 0 0 0 0 0 0 0
Layoffs 0 0 0 0 0 0 0

Costs Totals
Productive time $14,000 16,000 18,000 20,000 20,000 14,000 $102,000
Undertime $6,000 4,000 2,000 0 0 6,000 $18,000
Overtime $0 0 0 3,000 6,000 0 $9,000
Inventory $0 0 0 0 0 0 $0
Backorders $0 0 0 0 0 0 $0
Hires $0 0 0 0 0 0 $0
Layoffs $0 0 0 0 0 0 $0

Total cost $20,000 20,000 20,000 23,000 26,000 20,000 $129,000

458
180. A retailer experiences a seasonal demand pattern for its services. Labor requirements over a
typical six-month period follow.
Period 1 2 3 4 5 6
Wages = $1,500 per worker per month
Hiring cost = $1,500 per worker
Layoff cost = $1,500 per worker
The current workforce level is 11 workers. Use the spreadsheet approach and the preceding data
to answer the following questions.
a. What is the total cost of the staffing plan, including the cost of regular wages, hiring, and layoffs
using a chase strategy with hiring and layoffs, but no overtime?
b. What is the total cost of the staffing plan, using a level strategy in which no overtime is allowed,
and the undertime paid for?
c. Suppose that overtime is allowed up to 25% of the regular-time capacity, and that overtime wages
are 150% of the regular-time rate. What is the total cost of the level strategy with overtime and
undertime that also minimizes undertime?
459
Answer:
a.

Requirement 12 10 12 8 9 8 59
Workforce level 12 10 12 8 9 8 59
Undertime 0 0 0 0 0 0 0
Overtime 0 0 0
Vacation time 0
Backorders 0

Inventory 0 0 0 0 0 0 0
Hires 1 0 2 0 1 0 4
Layoffs 0 2 0 4 0 1 7

Costs b b b b b b Totals
Productive time $18,000 15,000 18,000 12,000 13,500 12,000 $88,500
Undertime $0 0 0 0 0 0 $0
Overtime $0 0 0 0 0 0 $0
Inventory $0 0 0 0 0 0 $0
Backorders $0 0 0 0 0 0 $0
Hires $1,500 0 3,000 0 1,500 0 $6,000
Layoffs $0 3,000 0 6,000 0 1,500 $10,500

Total cost $19,500 18,000 21,000 18,000 15,000 13,500 $105,000
460
b.
Requirement 12 10 12 8 9 8 59
Workforce level 12 12 12 12 12 12 72
Undertime 0 2 0 4 3 4 13
Overtime 0
Vacation time 0
Backorders 0

Inventory 0 0 0 0 0 0 0
Hires 1 0 0 0 0 0 1
Layoffs 0 0 0 0 0 0 0

Costs Totals
Productive time $18,000 15,000 18,000 12,000 13,500 12,000 $88,500
Undertime $0 3,000 0 6,000 4,500 6,000 $19,500
Overtime $0 0 0 0 0 0 $0
Inventory $0 0 0 0 0 0 $0
Backorders $0 0 0 0 0 0 $0
Hires $1,500 0 0 0 0 0 $1,500
Layoffs $0 0 0 0 0 0 $0

Total cost $19,500 18,000 18,000 18,000 18,000 18,000 $109,500
461
c
. To minimize undertime, take maximum requirements divided by the quantity one plus the percent of
overtime allowed. In this case, 12/1.25 = 9.6, so use a plan with 10 workers.
Requirement 12 10 12 8 9 8 59
Workforce level 10 10 10 10 10 10 60
Undertime 0 0 0 2 1 2 5
Overtime 2 2 4
Vacation time 0
Backorders 0

Inventory 0 0 0 0 0 0 0
Hires 0 0 0 0 0 0 0
Layoffs 1 0 0 0 0 0 1

Costs Totals
Productive time $15,000 15,000 15,000 12,000 13,500 12,000 $82,500
Undertime $0 0 0 3,000 1,500 3,000 $7,500
Overtime $4,500 0 4,500 0 0 0 $9,000
Inventory $0 0 0 0 0 0 $0
Backorders $0 0 0 0 0 0 $0
Hires $0 0 0 0 0 0 $0
Layoffs $1,500 0 0 0 0 0 $1,500

Total cost $21,000 15,000 19,500 15,000 15,000 15,000 $100,500

462
181. The demand forecast for the next four periods is 90, 100, 120, and 140 units respectively. The plant
has a regular capacity of 100 units per period, an overtime capacity of 10 units per period, and a
subcontractor capacity of 5 units per period. There is a $5 per unit charge for regular production, an
$8 per unit charge for overtime production, and a $9 per unit charge for subcontracting. The holding
cost is $3 per unit per period, no shortages are allowed and the company has 5 units in inventory at
the start of the planning period.
a. How many units should be produced using overtime?
b. How many units should be produced using subcontracting?
c. What is the total inventory holding cost?
d. What is the lowest total plan cost?
e. Fill out this table showing the number of units made by period using each type of
production and the resulting inventory at the end of each period.
Period 1 Period 2 Period 3 Period 4 Total Cost
Forecast 90 100 120 140
Regular
Overtime
Subcontracting
Ending
Inventory
Answer:
a. 30 units made using overtime
b. 15 units made using subcontracting
c. $210 total holding cost (70 unit-periods)
d. $2585 total plan cost
e. table appears below
Period 1 Period 2 Period 3 Period 4 Total Cost
Forecast 90 100 120 140
Regular ($5) 100 100 100 100 $2000
Overtime ($8) 0 10 10 10 $240
Subcontracting ($9) 0 5 5 5 $135
Ending Inventory ($3) 15 30 25 0 $210
$2585
Keywords: sales, operations, planning, transportation
463

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Chapter 14  Sales and Operations Planning

14 Sales and Operations Planning

3. A staffing plan is a manufacturing firm’s sales and operations plan.

10. Anticipation inventory is used to absorb uneven rates of demand or supply.

18. A sales and operations plan for a service firm is:

19. A sales and operations plan for a manufacturing firm is:

24. Which of the following is NOT a typical product family?

25. Companies perform aggregation along three dimensions:

31. The lowest of these planning levels is:

38. The meaning of undertime is:

48. Which one of the following statements is best?

58. Which one of the following actions applies to a level strategy?

89. The transportation method of production planning is a special case of:

Month Unused Total

Requirements 150 450 430 430 150 1610

Month Unused Total

Requirement 200 190 210 320 30 950

Quarter Unused Total

Requirement 300 400 250 350 85 1385

Quarter Unused Total

Requirement 1800 1300 2300 1750 250 7400

Costs associated with operations are as follows:

The relevant costs are:

FILL IN THE BLANK

143. A sales and operations plan is sometimes called a(n) ____________.

147. A(n) ____________ is a projected statement of income, costs, and profits.

165. How can the workforce be aggregated?

166. What is a product family?

168. What is a mixed-strategy approach to sales and operations planning?

January February March

January February March

Reference: Decision Support Tools

Quarter Unused Total

Period Unused Total

Reference: Decision Support Tools

Reference: Decision Support Tools

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