January February March April May

Demand Forecast 500 600 650 800 900

Number of Working Days 22 19 21 21 22

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

Production Plan 1: Exact Production; Vary Workforce

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

Production Plan 2: Constant Workforce; Vary Inventory and Stockout

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

*Assume a constant workforce of 10. Total Cost

Summary
Sub- Straight
Plan Description Hiring Layoff
contract Time
Shortage

a. Exact Production; vary workforce $700 $100 $202,500

b. Constant workforce; vary inventory and $125,000 $75,600
shortages
c. Constant workforce; subcontract $154,000 $125,000
 June Totals
800 4,250
20 125

cost less $100 material savings)

 June
0
800
0
800

June Total
800
3,200
20

160

20

0
$0 $700
0
$0 $100
$40,000 $202,500
Total Cost $203,300

tockout
June Total
-1150
20
1,600

400
800
-1550
$31,000 $75,600
0
0
$0 $1,400
$20,000 $125,000

Total Cost $202,000

ct
June Total
800
20
1,600

400

400
$40,000 $155,000
$20,000 $125,000

Total Cost $280,000

Excess
Total Cost
Inventory
$203,300

$1,400 $202,000

$279,000