Ch16 Aggregate Planning

Beginning Inventory Demand Forecast Number of Working Days by Month Costs Materials Inventory holding cost Marginal cost
of stockout Marginal cost of subcontracting Hiring and training cost Layoff cost Labor hours required per unit Straight-line cost (first eight hours each day) Overtime cost (time and a half) Aggregate Production Planning Requirements
January 400 1800 22
February 450 1500 19
March 375 1100 21
April 275 900 21
May 225 1100 22
June 275 1600 20
Totals 8000 125
$100.00 $1.50 $5.00 $20.00 $200.00 $250.00 5.0 $4.00 $6.00
$ per unit $ per unit per month $ per unit per month $ per unit ($120 less $100 material cost) $ per worker $ per worker $ per unit $ per hour $ per hour
Beginning Inventory Demand Forecast Safety Stock (.25 x Demand Forecast) Production Requirement Ending Inventory
January 400 1,800 450 1,850 450
February 450 1,500 375 1,425 375
March 375 1,100 275 1,000 275
April 275 900 225 850 225
May 225 1,100 275 1,150 275
June 275 1,600 400 1,725 400
Exhibits 16.4 - Costs of Four Production Plans Production Plan 1: Exact Production; Vary Workforce January February March April 1,850 1,425 1,000 850 9,250 7,125 5,000 4,250 22 19 21 21 176 152 168 168 53 47 30 25 0 0 0 0 $0 $0 $0 $0 0 6 17 5 $0 $1,500 $4,250 $1,250 $37,000 $28,500 $20,000 $17,000
Production Requirement Production Hours Required Working Days per Month Hours per Month per Worker Workers Required New Workers Hired Hiring Cost Workers Laid Off Layoff Cost (Workers Laid Off x $250) Straight Time Cost
May 1,150 5,750 22 176 33 8 $1,600 0 $0 $23,000
June 1,725 8,625 20 160 54 21 $4,200 0 $0 $34,500 Total Cost
Total
$5,800 $7,000 $160,000 $172,800
Production Plan 2: Constant Workforce; Vary Inventory and Stockout

Beginning Inventory Working Days per Month Production Hours Available (Working Days per
Month x 8 Hr./Day x 40 Workers)* Actual Production (Production Hours Available/5 Hr./Unit)
January February 400 8 22 19 7040 1408 1800 8 $0 450 0 $0 $28,160 6080 1216 1500 -276 $1,380 375 0 $0 $24,320
March -276 21 6720 1344 1100 -32 $160 275 0 $0 $26,880
April -32 21 6720 1344 900 412 $0 225 187 $281 $26,880
May 412 22 7040 1408 1100 720 $0 275 445 $668 $28,160
June 720 20 6400 1280 1600 400 $0 400 0 $0 $25,600 Total Cost
Total
Demand Forecast (From Exhibit 16.3) Ending Inventory (Beginning Inventory + Actual
Production - Demand Forecast)
Shortage Cost (Units Short x $5) Safety Stock (From Exhibit 16.4) Units Excess (Ending Inventory - Safety Stock) Inventory Cost (Units Excess x $1.50) Straight Time Cost
*(Sum of Production Requirement in Exhibit 16.3 x 5 hr./unit)/(Sum of Production Hours Available x 8 hr./day) = (8,000 x 5)/(125 x 8) = 40
$1,540
$948 $160,000 162,488
Production Plan 3: Constant Low Workforce; Subcontract

Production Requirement Working Day per Month Production Hours Available (Working Day x 8 Hrs./Day x 25 Workers)* Actual Production (Production Hours Available/5 hr.per Unit) Units Subcontracted (Production Requirement Actual Production) Subcontracting Cost (Units Subcontracted x $20) Straight Time Cost
*Minimum production requirement. In this example, April is minimum of 850 units. Number of workers required for April is (850 x 5)/(21 x 8) = 25
January February 1,850 1,425 22 19 4,400 880 970 $19,400 $17,600 3,800 760 665 $13,300 $15,200
March 1,000 21 4,200 840 160 $3,200 $16,800
April 850 21 4,200 840 10 $200 $16,800
May 1,150 22 4,400 880 270 $5,400 $17,600
June 1,725 20 4,000 800 925 $18,500 $16,000 Total Cost
Total
$60,000 $100,000 $160,000
Production Plan 4: Constant Workforce; Overtime

Beginning Inventory Working Days per Month Production Hours Available (Working Days x 8
Hr./Day x 38 Workers)
January February 400 0 22 19 6,688 1,338 1,800 -62 62 $1,860 450 0 $0 $26,752 5,776 1,155 1,500 -345 345 $10,350 375 0 $0 $23,104
March 0 21 6,384 1,277 1,100 177 0 $0 275 0 $0 $25,536
April 177 21 6,384 1,277 900 553 0 $0 225 328 $493 $25,536
May 553 22 6,688 1,338 1,100 791 0 $0 275 516 $774 $26,752
June 791 20 6,080 1,216 1,600 407 0 $0 400 7 $10 $24,320 Total Cost
Total 125
Regular Shift Production (Production Hours

Available / 5 hrs. per Unit)
Demand Forecast (From Exhibit 16.3) Units Available before Overtime (Beginning
Inventory + Regular Shift Production - Demand Forecast)
8000
Units Overtime Overtime Cost (Units Overtime x $6/Hr x 5 hr./Unit) Safety Stock (From Exhibit 16.3) Units Excessive (Units Available before Overtime Safety Stock)
$12,210
Inventory Cost (Units Excessive x $1.50) Straight Time Cost
$1,277 $152,000 $165,487
Exhibit 16.7 Actual Demand Requirement for Full-Time Direct Employees and Full-Time-Equivalent (FTE) Part-Time Employees Jan. 22 66 1,452 41 902 Feb. 20 28 560 75 1,500 Mar. 21 130 2,730 72 1,512 Apr. 22 90 1,980 68 1,496 May 21 195 4,095 72 1,512 Jun 20 290 5,800 302 6,040 Jul 21 325 6,825 576 12,096 Aug 21 92 1,932 72 1,512 Sep 21 45 945 0 0 Oct 23 32 736 68 1,564 Nov 18 29 522 84 1,512 Dec 22 60 1,320 27 594 30,240 Total 252 28,897
Days Full-time employees Full-time days* Full-time-equivalent part-time employees FTE days
* Full-time Days are derived by multiplying the number of days in each month by the number of workers.
Monthly Requirement for Full-Time Direct-Labor Employees (Other than Key Personnel) and Full-Time-Equivalent Part-Time Employees
Full-time equivalent employees required
600
500 400
300
200 100
0 Jan. Feb. Mar. Apr. May Jun Jul Aug Sep Oct Nov Dec
PTE part-time
Full-time
Exhibit 16.8 Three Possible Plans for the Parks and Recreation Department Alternative 1: Maintain 116 full-time regular direct workers, Schedule work during off-seasons to level workload throught the year. Continue to use 120 full-time-equivalent (FTE) part-time employees to meet high demand periods. Wages (FT, $4.45; PT, Fringe Benefits Adm. Cost $4.03) (FT, 17%; PT, 11%) (FT, 20%; PT, 25%) $1,040,659 $176,912 $208,132 $974,938 $107,243 $243,734 $2,015,597 $284,155 $451,866
Costs 116 full-time regular employees 120 part-time employees Total cost = $2,751,619
Days per Year Hours (Employees (Exhibit 14.8) x Days x 8 hours) 252 233,856 252 241,920
Alternative 2: Maintain 50 full-time regular direct workers and the present 120 FTE part-time employees. Subcontract jobs releasing 66 full-time regular employees. Subcontract cost, $1,100,000
Costs 50 full-time employees 120 FTE part-time employees Subconstracting Cost Total Cost = $3,040,443
Days per Year Hours (Employees (Exhibit 14.8) x Days x 8 hours) 252 100,800 252 241,920
Wages (FT, $4.45; PT, Fringe Benefits Adm. Cost Subcontract $4.03) (FT, 17%; PT, 11%) (FT, 20%; PT, 25%) Cost $448,560 $76,255 $89,712 $1,100,000 $974,938 $1,423,498 $107,243 $183,498 $243,734 $333,446
$1,100,000
Alternative 3: Subcontract all jobs previously by 116 full-time regular employees. Subcontract cost $ 1,600,000. Subcontract all jobs previously performed by 120 full-time-equivalent part-time employees. Subcontract cost $1,850,000 Costs 0 full-time employees 0 part-time employees Subcontract full-time jobs Subcontract part-time jobs Total Cost Subcontract Cost
$1,600,000 $1,850,000 $3,450,000

Ch16 Aggregate Planning

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Beginning Inventory Demand Forecast Number of Working Days by Month Costs Materials Inventory holding cost Marginal cost

January 400 1800 22

February 450 1500 19

March 375 1100 21

April 275 900 21

May 225 1100 22

June 275 1600 20

Totals 8000 125

$100.00 $1.50 $5.00 $20.00 $200.00 $250.00 5.0 $4.00 $6.00

January 400 1,800 450 1,850 450

February 450 1,500 375 1,425 375

March 375 1,100 275 1,000 275

April 275 900 225 850 225

May 225 1,100 275 1,150 275

June 275 1,600 400 1,725 400

May 1,150 5,750 22 176 33 8 $1,600 0 $0 $23,000

June 1,725 8,625 20 160 54 21 $4,200 0 $0 $34,500 Total Cost

$5,800 $7,000 $160,000 $172,800

Production Plan 2: Constant Workforce; Vary Inventory and Stockout

March -276 21 6720 1344 1100 -32 $160 275 0 $0 $26,880

$948 $160,000 162,488

Production Plan 3: Constant Low Workforce; Subcontract

March 1,000 21 4,200 840 160 $3,200 $16,800

April 850 21 4,200 840 10 $200 $16,800

May 1,150 22 4,400 880 270 $5,400 $17,600

June 1,725 20 4,000 800 925 $18,500 $16,000 Total Cost

$60,000 $100,000 $160,000

Production Plan 4: Constant Workforce; Overtime

March 0 21 6,384 1,277 1,100 177 0 $0 275 0 $0 $25,536

Regular Shift Production (Production Hours

Inventory Cost (Units Excessive x $1.50) Straight Time Cost

$1,277 $152,000 $165,487

Full-time equivalent employees required

$1,600,000 $1,850,000 $3,450,000

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