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Jerusalem Medical Ltd.
, an Israeli producer of portable kidney dialysis units and other medical

products, develops a 4-month aggregate plan. Demand and capacity (in units) are forecast as
follows:
The cost of producing each dialysis unit is $985 on regular time, $1,310 on overtime, and
$1,600 on a subcontract. Inventory carrying cost is $100 per unit per month. There is to be no
beginning or ending inventory in stock and backorders are not permitted.
Minimizing cost using the transportation method, the optimal cost is
245 x 985 +15 x 1310 = 260,975
m
275 x 985 + 24 x 1310 + 15 x 1600 = 326,315
er as
300 x 985 + 26 x 1310 + 10 x 1600 = 345,560
co
300 x 985 + 1 x 1310 = 296,810
eH w
296,810 + 345,560 + 326,315 + 260,975 = 1,229,660
o.
The president of Hill Enterprises, Terri Hill, projects the firm's aggregate demand requirements over the
next 8 months as follows: rs e
ou urc
o
aC s
vi y re
Her operations manager is considering a new plan, which begins in January with 200 units of inventory on
hand. Stockout cost of lost sales is $125 per unit. Inventory holding cost is $20 per unit per month. Ignore
any idle-time costs. The plan is called plan A.
ed d
ar stu
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 $50 per unit. The cost of laying off workers is $80 per unit. Evaluate this plan. (Enter
all responses as whole numbers.)
is
Note: Both hiring and layoff costs are incurred in the month of the change. For example, going from 1,600
Th
in January to 1,200 in February incurs a cost of layoff for 400 units in February.
sh
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Look at the difference from the period before to determine layoffs and hires
1. 0 0
2. 400 extra production therefore 400 layoffs
3. 400 extra demand therefore 400 hires
4. 0
m
er as
7. 100 extra production therefore 100 layoffs
co
500 extra production therefore 500 layoffs
eH w
PERIOD:
o.
0. Ending inventory= 200
rs e
1. Production - Demand = 400
ou urc
Ending Inventory: 400+200= 600
2. Production - Demand = -400
Ending inventory= 600-400 = 200
o
Ending inventory remains the same at 200

aC s

vi y re
Ending inventory = 200-200= 0

Since Ending inventory is at 0 put the 500 into stockouts
ed d
Ending inventory= 100

ar stu

Ending inventory= 100 +500 = 600
is
Ending inventory remains the same= 600

Total cost of hirings = 55,000
Th
Total cost of layoffs = 80,000

Total inventory carrying cost = 46,000
Total stockout cost = 62,500
Total cost, excluding normal time labor costs= 243,500
sh
next 8 months as follows:
Her operations manager is considering a new plan, which begins in January with
200 units on hand and ends with zero inventory. Stockout cost of lost sales is $125 per unit. Inventory
holding cost is $25 per unit per month. Ignore any idle-time costs. The plan is called plan B.
Plan B: Produce at a constant rate of 1,200 units per month, which will meet minimum demands. Then
use subcontracting, with additional units at a premium price of $75 per unit. Subcontracting capacity is
limited to 1,100 units per month. Evaluate this plan by computing the costs for January through August. In
order to arrive at the costs, first compute the ending inventory and subcontracting units for each month by
filling in the table below (enter your responses as whole numbers).
m
er as
co
eH w
o.
rs e
ou urc
0. Starting amount: 200
o
1. Production-demand= 0
aC s
Ending inventory remains the same at 200

vi y re
2. Production-demand= -400
Ending inventory = 200- 400= -200 so 200 goes into subcontract
Subcontract 600
ed d
ar stu
Subcontract 500
5. Production-demand= -1,100
Subcontract 1,100
is
Subcontract= 900
Th
Subcontract= 600
Subcontract= 300
sh
Total subcontracting cost= 315,000

Total inventory carrying cost= 5,000
Total cost, excluding time labor costs is= 320,000
any idle-time costs. The plan is called plan C.
Plan C: Keep a stable workforce by maintaining a constant production rate equal to the average gross
requirements excluding initial inventory and allow varying inventory levels. Conduct your analysis for
January through August. The average monthly demand requirement equals 1700 units.
m
er as
co
eH w
o.
rs e
ou urc
o
0: begins with 200

aC s
vi y re
Ending inventory= 200 + 500 = 700

Ending inventory= 700 +200= 900
ed d
Ending inventory= 900 + 100= 1,000

ar stu
Ending inventory= 1,000-200= 800
is
Ending inventory= 800-400= 400

Th
Ending inventory= 400-600= -200 so 200 goes into stockouts

Both 0
sh

Total stockout cost= 20,000
Total inventory carrying cost= 84,000
Total cost, excluding time labor costs= 104,000
any idle-time costs. Evaluate the following plans D and E.
Plan D: Keep the current workforce stable at producing 1,600 units per month. In addition to the regular
production, another 20% of the normal production units can be produced in overtime at an additional cost
of $55 per unit. A warehouse now constrains the maximum allowable inventory on hand to 600 units or
less.
m
er as
co
eH w
o.
rs e
ou urc
o
aC s
vi y re
1600x.2= 320 (max O.T.)

ed d
0. Begins at 200
ar stu
Ending inventory= 200 + 200 = 400

is
Th
Ending inventory= 400-300=100
sh
Ending inventory= 100-700=-600 so 0; OT: 320 stockouts:280
OT: 320 stockouts: 280
OT: 200
Ending Inventory= 200
Total overtime production cost= 46,200
Total inventory holding cost for January through August= 37,500
Total stockout cost= 39,200
Total cost, excluding normal time labor costs, for Plan D= 122,900
Plan E: Keep the current workforce, which is producing 1,600 units per month, and subcontract to meet
the rest of the demand. Subcontract cost is $75 per unit. Subcontracting capacity is limited to
600 units per month. The warehouse and overtime constraints from Plan D do not apply to this plan.
m
er as
co
eH w
o.
rs e
ou urc
o
0: Beginning amount 200

aC s
vi y re
Ending inventory= 200+ 200= 400

ed d

ar stu
Ending inventory= 400-300= 100
Ending inventory= 100-700= -600 so 0 then subcontract: 600
is
Th
Subcontract= 600
Subcontract= 200
sh

Total subcontracting cost= 105,000
Total inventory holding cost for January through August = 37,500
Total cost, excluding normal time labor costs, for Plan E= 142,500
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What are the different production plans being evaluated?

What are the different production plans being evaluated?

What are the costs considered in each production plan?

What are the costs considered in each production plan?

Jerusalem Medical Ltd.

, an Israeli producer of portable kidney dialysis units and other medical

Ending inventory remains the same at 200

4. Production - Demand = -200

Ending inventory = 200-200= 0

Ending inventory= 100

7. Production - Demand = 500

Ending inventory remains the same= 600

Total cost of layoffs = 80,000

Ending inventory remains the same at 200

Total subcontracting cost= 315,000

0: begins with 200

Ending inventory= 200 + 500 = 700

Ending inventory= 900 + 100= 1,000

Ending inventory= 800-400= 400

Ending inventory= 400-600= -200 so 200 goes into stockouts

Ending inventory= 400

1600x.2= 320 (max O.T.)

Ending inventory= 200 + 200 = 400

0: Beginning amount 200

Ending inventory= 200+ 200= 400

Ending inventory= 400

Ending inventory= 200

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