13.

3
.13.3 The president of
Hill
t s the firm s
jecis aggregate demand
Enterprises, Terri Hill, pro-
S months as follows: requirements over the next
Jan. 1,400
Feb May 2,200
i,600 June
Mar. 1,800 2,200
July 1,800
Apr 1,800
www

Aug 1,800
Her operations manager is
considering a
hegins in January with 200 units on plan, whichnew
hand. Stockout cost of
lost sales is $100 per unit.
Inventory holding cost is S20 per
unit per month. Ignore any idle-time costs. The
plan A. plan is called

Plan A: Vary the workforce level to execute a

strategy that
produces 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.
Note: Both hiring and layoff costs are incurred in the month of
the change. For example, going from 1,600 in January to 1.400 in
February incurs a cost of layoff for 200 units in February.
13.4 Using the information in Problem 13.3, develop
plan B. Produce at a constant rate of 1,400 units per month,
c h Will meet minimum demands. Then use subeontract-
ng,with additional units at a premium price ot s/> per
for January
Valuate this plan by computing the costs
through August.
stable
13.5 n i s now considering plan C: Keep a
Workforce production rale equal
by maintaining a constant
to the average requirements and allow varyng iunventory lev
els. Beginning stockout costs, and holdng
costs are

Inventory,
provided in 8Problem 13.3. erage Tequire-
13.12 Southeast Soda Pop. Inc.. has new a
forwhich it has high hopes. John Mittenthal, the fruit. drink
planner. has assenmbled the following cost data
and
forecast: demand
QUARTER FORECAST
1
1,800
2 1,100
3 1,600
4 900

COSTS/OTHER DATA
Previous quarter's output =
1,300 cases
Beginning inventory 0 cases
Stockout cost $150 per case
=

Inventory holding cost $40 per

****
=
case at end of quarter
Hiring employees $40 per case =

Terminating employees $80 per case

Subcontracting cost $60 per case =

Unit cost on reqular time =

$30 per case
Overtime cost =
$15 extra per case
Capacity on reqular time 1,800 cases per
=

quartel
John's job is to develop an aggregate plan. The three initial
options he wants to evaluate are:
Plan A: a strategy that hires and fires personnel as
necessary to meet the forecast.
Plan B: a level strategy.
Plan C: a level strategy that produces 1,200 cases per
quarter and meets the forecast demand with inventory
and subcontracting.
a) Which strategy is the lowest-cost plan?
b) If you are John's boss, the VP for operations, which plan
do you implement and why?