Question

Neal Industries manufactures blue jeans for the teen market. The S&OP team has agreed upon a demand forecast for the following year, as shown below. The company begins with 1,800,000 jeans in safety stock and desires to maintain this level consistently (and end with this level), assume that the overtime production wage rate is $24 per hour.

Quarter	Demand
1	7,500,000
2	8,300,000
3	15,000,000
4	12,500,000

Current workforce		300	workers
Average output per worker		25,000	jeans per quarter
Inventory holding cost	$	0.50	pair per quarter
Regular wage rate	$	16	per hour
Regular production hours		500	hours per quarter
Hiring cost	$	330	per worker
Firing/layoff cost	$	240	per worker
Beginning inventory	$	1,800,000

a. Develop a chase plan using a stable workforce of 300 workers. (Leave no cells blank - be certain to enter "0" wherever required.)

Quarter	Demand	Regular Production	Overtime Production	Ending Inventory	Workers Required	Hire	Fire layoff
1	7,500,000
2	8,300,000
3	15,000,000
4	12,500,000
Total	43,300,000	0	0	0		0	0

b. Compute the cost of a chase plan using a stable workforce of 300 workers.

Answer 1

Quarter	Demand	Regular Production	Overtime Production	Ending Inventory (E)	Workers Required	Hire	Fire layoff
	D	R	O	1800000
1	7,500,000	300*25,000 = 7500000		7,500,000+0+1,800,00-7,500,000 = 1,800,000
2	8,300,000	7500000		R+O+E-D = 7,500,000+0+1,800,00 = 1,000,000
3	15,000,000	7500000	15,000,000-(7500000+1,000,000) = 6,500,000	0
4	12,500,000	7500000	12,500,000-(7500000+0) = 5,000,000	0
Total units	43,300,000	30,000,000	11500000	2800000		0	0
	Hours required	30,000,000/500 = 60000	23000
	Hourly rate	16	24	0.5
	Total cost	60,00*16 = 960,000	23,000*24 = 552,000	2,800,000*0.5 = 1,400,000
	Plan Cost	2,912,000

Plan Cost = $2,912,000