January February March April May June

Demand Forecast 500 600 650 800 900 800

Number of Working Days 22 19 21 21 22 20

Costs

Materials $100.00 /unit

Inventory holding cost $10.00 /unit/month
Marginal cost of stockout $20.00 /unit/month
Marginal cost of subcontracting $100.00 /unit ($200 subcontracting cost less $100 material savings)
Hiring and training cost $50.00 /worker
Layoff cost $100.00 /worker
Labor hours required 4 /unit
Straight-line cost (first eight hours each day) $12.50 /hour
Overtime cost (time and a half) $18.75 /hour

Inventory
Beginning Inventory 200 units
Safety Stock Required 0% of month demand

Aggregate Production Planning Requirements

 January February March April May June
Beginning Inventory 200 0 0 0 0 0
Demand Forecast 500 600 650 800 900 800
Safety Stock (.25 x Demand Forecast) 0 0 0 0 0 0
Production Requirement (Demand Forecast + Safety
300 600 650 800 900 800
Stock - Beginning Inventory)
Ending Inventory (Beginning Inventory + Production
0 0 0 0 0 0
Requirement - Demand Forecast)

Production Plan 1: Exact Production; Vary Workforce

January February March April May June
Production Requirement 300 600 650 800 900 800
Production Hours Required (Production Requirement
1,200 2,400 2,600 3,200 3,600 3,200
x 4 Hr./Unit)
Working Days per Month 22 19 21 21 22 20
Hours per Month per Worker (Working Days x 8
176 152 168 168 176 160
Hrs/Day)
Workers Required (Production Hours Required / Hours
7 16 15 19 20 20
per Month per Worker)
New Workers Hired (Assuming opening workforce
0 9 0 4 1 0
equal to first month's requirement of 7 workers.)
Hiring Cost (new Workers Hired x $50) $0 $450 $0 $200 $50 $0
Workers Laid Off 0 0 1 0 0 0
Layoff Cost (Workers Laid Off x $100) $0 $0 $100 $0 $0 $0
Straight Time Cost (Production Hours Required x
$15,000 $30,000 $32,500 $40,000 $45,000 $40,000
$12.50)
Total Cost

Production Plan 2: Constant Workforce; Vary Inventory and Stockout

January February March April May June
Beginning Inventory 200 140 -80 -310 -690 -1150
Working Days per Month 22 19 21 21 22 20
Production Hours Available (Working Days per Month
1,760 1,520 1,680 1,680 1,760 1,600
x 8 Hr./Day x 10 Workers)*
Actual Production (Production Hours Available / 4
440 380 420 420 440 400
Hr./Unit)
Demand Forecast 500 600 650 800 900 800
Ending Inventory (Beginning Inventory + Actual
140 -80 -310 -690 -1150 -1550
Production - Demand Forecast)
Shortage Cost (Units Short x $20) $0 $1,600 $6,200 $13,800 $23,000 $31,000
Safety Stock 0 0 0 0 0 0
Units Excess (Ending Inventory - Safety Stock) Only if
140 0 0 0 0 0
positive amount.
Inventory Cost (Units Excess x $10) $1,400 $0 $0 $0 $0 $0
Straight Time Cost (Production Hours Available x
$22,000 $19,000 $21,000 $21,000 $22,000 $20,000
$12.50)
*Assume a constant workforce of 10. Total Cost
 Production Plan 3: Constant Workforce; Subcontract
January February March April May June
Production Requirement 300 460 650 800 900 800
Working Day per Month 22 19 21 21 22 20
Production Hours Available (Working Day x 8
1,760 1,520 1,680 1,680 1,760 1,600
Hrs./Day x 10 Workers)*
Actual Production (Production Hours Available / 4 hr.
440 380 420 420 440 400
per Unit)
Units Subcontracted (Production Requirement - Actual
0 80 230 380 460 400
Production)
Subcontracting Cost (Units Subcontracted x $100) $0 $8,000 $23,000 $38,000 $46,000 $40,000
Straight Time Cost (Production Hours Available x
$22,000 $19,000 $21,000 $21,000 $22,000 $20,000
$12.50)

*Assume a constant workforce of 10. Total Cost

Summary
Sub- Straight Excess
Plan Description Hiring Layoff
contract Time
Shortage
Inventory
a. Exact Production; vary workforce $700 $100 $202,500
b. Constant workforce; vary inventory and $125,000 $75,600 $1,400
shortages
c. Constant workforce; subcontract $154,000 $125,000
 Totals
4,250
125

100 material savings)

 Total

$700

$100
$202,500
$203,300

Total

$75,600

$1,400
$125,000

$202,000
 Total

$155,000
$125,000

$280,000

Total Cost

$203,300

$202,000

$279,000
Solved Problem

Demand and Working Days

SPRINGSUMMER FALL WINTER

Demand Forecast 20,000 10,000 15,000 18,000
Number of Working Days 50 50 50 50

Costs

Materials $0.00 /unit

Inventory holding cost $20.00 /unit/quarter
Marginal cost of stockout/backorder $8.00 /unit/month
Marginal cost of subcontracting $0.00 /unit ($200 subcontracting cost less $100 mate
Hiring and training cost $100.00 /worker
Layoff cost $200.00 /worker
Labor hours required 2 /unit
Straight-line cost (first eight hours each day) $10.00 /hour
Overtime cost (time and a half) $15.00 /hour

Inventory
Beginning Inventory 1,000 units
Safety Stock Required 0% of month demand

Aggregate Production Planning Requirements

SPRINGSUMMER FALL WINTER

Beginning Inventory 1,000 0 0 0
Demand Forecast 20,000 10,000 15,000 18,000
Safety Stock (.25 x Demand Forecast) 0 0 0 0
Production Requirement (Demand Forecast + Safety
19,000 10,000 15,000 18,000
Stock - Beginning Inventory)
Ending Inventory (Beginning Inventory + Production
0 0 0 0
Requirement - Demand Forecast)

Production Plan 1: Exact Production; Vary Workforce

SPRINGSUMMER FALL WINTER
Production Requirement 19,000 10,000 15,000 18,000
Production Hours Required (Production Requirement
38,000 20,000 30,000 36,000
x 2 Hr./Unit)
Regular Workforce 70
Regular Production
Working Days per Quarter 50 50 50 50
Hours per Quarter per Worker (Working Days x 8
400 400 400 400
Hrs/Day)
Workers Required (Production Hours Required / Hours
95 50 75 90
per QURTER per Worker)
New Workers Hired (Assuming opening workforce
0 0 25 15
equal to first month's requirement of 7 workers.)
Hiring Cost (new Workers Hired x $50) $0 $0 $2,500 $1,500
Workers Laid Off 0 45 0 0
Layoff Cost (Workers Laid Off x $100) $0 $9,000 $0 $0
Straight Time Cost (Production Hours Required x
$380,000 $200,000 $300,000 $360,000
$12.50)

Production Plan 2: Constant Workforce; Vary Inventory and Stockout

SPRINGSUMMER FALL WINTER
Beginning Inventory 1000 -17000 -25000 -38000
Working Days per Month 50 50 50 50
Production Hours Available (Working Days per Month
4,000 4,000 4,000 4,000
x 8 Hr./Day x 10 Workers)*
Actual Production (Production Hours Available / 4
2,000 2,000 2,000 2,000
Hr./Unit)
Demand Forecast 20,000 10,000 15,000 18,000
Ending Inventory (Beginning Inventory + Actual
-17000 -25000 -38000 -54000
Production - Demand Forecast)
Shortage Cost (Units Short x $20) $136,000 $200,000 $304,000 $432,000
Safety Stock 0 0 0 0
Units Excess (Ending Inventory - Safety Stock) Only if
0 0 0 0
positive amount.
Inventory Cost (Units Excess x $10) $0 $0 $0 $0
Straight Time Cost (Production Hours Available x
$40,000 $40,000 $40,000 $40,000
$12.50)
*Assume a constant workforce of 10.

Production Plan 3: Constant Workforce; Subcontract

SPRINGSUMMER FALL WINTER
Production Requirement 19,000 10,000 15,000 18,000
Working Day per Month 50 50 50 50
Production Hours Available (Working Day x 8
4,000 4,000 4,000 4,000
Hrs./Day x 10 Workers)*
Actual Production (Production Hours Available / 4 hr.
2,000 2,000 2,000 2,000
per Unit)
Units Subcontracted (Production Requirement - Actual
17,000 8,000 13,000 16,000
Production)
Subcontracting Cost (Units Subcontracted x $100) $0 $0 $0 $0
Straight Time Cost (Production Hours Available x
$40,000 $40,000 $40,000 $40,000
$12.50)

*Assume a constant workforce of 10.

Summary
 Sub- Straight
Plan Description Hiring Layoff
contract Time
a. Exact Production; vary workforce $700 $100 $202,500
b. Constant workforce; vary inventory and $125,000
shortages
c. Constant workforce; subcontract $154,000 $125,000
 Totals
63,000
200

racting cost less $100 material savings)

Total
 $4,000

$9,000
$1,240,000
$1,253,000

out
Total

15,750 39.375

$1,072,000

$0
$160,000

$1,232,000

Total

$0
$160,000

$160,000
Total Cost

$203,300

$125,000

$279,000
 March Feb March April May June
Demand Forecast 500 600 650 800 900 800
Number of Working Days 22 19 21 21 22 20

Costs

Materials $100.00 /unit

Inventory holding cost $10.00 /unit/month
Marginal cost of stockout $20.00 /unit/month
Marginal cost of subcontracting $100.00 /unit ($200 subcontracting cost less $100 material savings)
Hiring and training cost $50.00 /worker
Layoff cost $100.00 /worker
Labor hours required 4 /unit
Straight-line cost (first eight hours each day) $12.50 /hour
Overtime cost (time and a half) $18.75 /hour

Inventory
Beginning Inventory 200 units
Safety Stock Required 25% of month demand

Aggregate Production Planning Requirements

 January February March April May June
Beginning Inventory 200 125 150 163 200 225
Demand Forecast 500 600 650 800 900 800
Safety Stock (.25 x Demand Forecast) 125 150 163 200 225 200
Production Requirement (Demand Forecast + Safety
425 625 663 838 925 775
Stock - Beginning Inventory)
Ending Inventory (Beginning Inventory + Production
125 150 163 200 225 200
Requirement - Demand Forecast)

Production Plan 1: Exact Production; Vary Workforce

January February March April May June
Production Requirement 425 625 663 838 925 775
Production Hours Required (Production Requirement
1,700 2,500 2,650 3,350 3,700 3,100
x 4 Hr./Unit)
Working Days per Month 22 19 21 21 22 20
Hours per Month per Worker (Working Days x 8
176 152 168 168 176 160
Hrs/Day)
Workers Required (Production Hours Required / Hours
10 16 16 20 21 19
per Month per Worker)
New Workers Hired (Assuming opening workforce
0 6 0 4 1 0
equal to first month's requirement of 7 workers.)
Hiring Cost (new Workers Hired x $50) $0 $300 $0 $200 $50 $0
Workers Laid Off 0 0 0 0 0 2
Layoff Cost (Workers Laid Off x $100) $0 $0 $0 $0 $0 $200
Straight Time Cost (Production Hours Required x
$21,250 $31,250 $33,125 $41,875 $46,250 $38,750
$12.50)
Total Cost

Production Plan 2: Constant Workforce; Vary Inventory and Stockout

January February March April May June
Beginning Inventory 200 140 -80 -310 -690 -1150
Working Days per Month 22 19 21 21 22 20
Production Hours Available (Working Days per Month
1,760 1,520 1,680 1,680 1,760 1,600
x 8 Hr./Day x 10 Workers)*
Actual Production (Production Hours Available / 4
440 380 420 420 440 400
Hr./Unit)
Demand Forecast 500 600 650 800 900 800
Ending Inventory (Beginning Inventory + Actual
140 -80 -310 -690 -1150 -1550
Production - Demand Forecast)
Shortage Cost (Units Short x $20) $0 $1,600 $6,200 $13,800 $23,000 $31,000
Safety Stock 125 150 163 200 225 200
Units Excess (Ending Inventory - Safety Stock) Only if
15 0 0 0 0 0
positive amount.
Inventory Cost (Units Excess x $10) $150 $0 $0 $0 $0 $0
Straight Time Cost (Production Hours Available x
$22,000 $19,000 $21,000 $21,000 $22,000 $20,000
$12.50)
*Assume a constant workforce of 10. Total Cost
 Production Plan 3: Constant Workforce; Subcontract
January February March April May June
Production Requirement 425 610 663 838 925 775
Working Day per Month 22 19 21 21 22 20
Production Hours Available (Working Day x 8
1,760 1,520 1,680 1,680 1,760 1,600
Hrs./Day x 10 Workers)*
Actual Production (Production Hours Available / 4 hr.
440 380 420 420 440 400
per Unit)
Units Subcontracted (Production Requirement - Actual
0 230 243 418 485 375
Production)
Subcontracting Cost (Units Subcontracted x $100) $0 $23,000 $24,250 $41,750 $48,500 $37,500
Straight Time Cost (Production Hours Available x
$22,000 $19,000 $21,000 $21,000 $22,000 $20,000
$12.50)

*Assume a constant workforce of 10. Total Cost

Summary
Sub- Straight Excess
Plan Description Hiring Layoff
contract Time
Shortage
Inventory
a. Exact Production; vary workforce $700 $100 $202,500
b. Constant workforce; vary inventory and $125,000 $75,600 $1,400
shortages
c. Constant workforce; subcontract $154,000 $125,000
 Totals
4,250
125

100 material savings)

 Total

$550

$200
$212,500
$213,250

Total

$75,600

$150
$125,000

$200,750
 Total

$175,000
$125,000

$300,000

Total Cost

$203,300

$202,000

$279,000