Manager T. C.

Downs of Plum Engines, a producer of lawn mowers and leaf blowers, must develop
an aggregate plan given the forecast for engine demand shown in the table. The department has a
normal capacity of 130 engines per month. Normal output has a cost of $60 per engine. The
beginning inventory is zero engines. Overtime has a cost of $90 per engine.
a. Develop a chase plan that matches the forecast and compute the total cost of your plan.
b. Compare the costs to a level plan that uses inventory to absorb fluctuations. Inventory carrying
cost is $2 per engine per month. Backlog cost is $90 per engine per month.

Month 1 2 3 4 5 6 7 8 Total
Forecast 120 135 140 120 125 125 140 135 1040

Strategy/Plan: Chase, overtime, CAPACITY = 130

Period 1 2 3 4 5 6 7 8 Total Cst/U T. Cost
Forecast 120 135 140 120 125 125 140 135 1040
Output
Regular 120 130 130 120 125 125 130 130 1010 60 60600
Overtime 5 10 10 5 30 90 2700
Subcontract 0 0
Output-Forecast 0 0 0 0 0 0 0 0
Inventory
Beginning
Ending
Average
Backlog
Total Cost 63300

Capacity 130 units

Note: When using chase strategy----- in deciding for overtime or subcon work,
use as indicator output-forecast row only. 130

Strategy/Plan: level, inventory, backlog, CAPACITY = 130 capacity

Period 1 2 3 4 5 6 7 8 Total Cst/U T. Cost level value
Forecast 120 135 140 120 125 125 140 135 1040
Output
Regular 130 130 130 130 130 130 130 130 1040 60 62400
Overtime 90 0
Subcontract 0 0
Output-Forecast 10 -5 -10 10 5 5 -10 -5
Inventory
Beginning 0 10 5 0 5 10 15 5
Ending 10 5 0 5 10 15 5 0
Average 5 7.5 2.5 2.5 7.5 12.5 10 2.5 50 2 100
Backlog 5 5 90 450
Total Cost 62950

Capacity 130 units

Level Value =1040/8 = 130 units
Note: When using level strategy----- in deciding for overtime or subcon work,
use as indicator the ending inventory only.
Note: If level value is lower than capacity-- use the level value.
If level value is higher than capacity-- use capacity value
Note: If backlogs are allowed, your indicator is the ending inventory--- negative values in the
ending inventory are placed as backlogs if overtime and subcon are not allowed and are subtracted
from the ending inventory of the period succeeding the period of the backlog.
Answer to Exer 6.

Strategy/Plan: Chase, overtime

Period 1 2 3 4 5 6 7 8 Total Cst/U T. Cost
Forecast 250 300 250 300 280 275 270 1925
Output
Regular 250 275 250 275 275 275 250 1850 40 74000
Overtime 25 25 5 20 75 60 4500
Subcontract 0 0
Output-Forecast 0 0 0 0 0 0 0 0

Beginning
Ending
Average 2 0
Backlog
Total Cost 78500

Capacity 275 units, and 250 units but only on the seventh period.
Note: When using chase strategy----- in deciding for overtime or subcon work,
use as indicator output-forecast row only.

Strategy/Plan: level, inventory, subcon 275

Period 1 2 3 4 5 6 7 8 Total Cst/U T. Cost
Forecast 250 300 250 300 280 275 270 1925
Output
Regular 275 275 275 275 275 275 250 1900 40 76000
Overtime 0 0 0
Subcontract 5 20 25 50 1250
Output-Forecast 25 -25 25 -25 0 0 0
Inventory
Beginning 0 25 0 25 0 0 0
Ending 25 0 25 0 0 0 0
Average 13 12.5 12.5 12.5 0 0 0 50 2 100
Backlog 0 90 0
Total Cost 77350

Capacity 275 units, and 250 units but only on the eight period.
Level Value =1925/7 = 275 units
Note: When using level strategy----- in deciding for overtime or subcon work,
use as indicator the ending inventory only.
Note: If level value is lower than capacity-- use the level value.
If level value is higher than capacity-- use capacity value
Answer to Exer 8.
Strategy/Plan: a. level strat, overtime (no limit) , inventory
Period 1 2 3 4 5 6 Total Cst/U T. Cost
Forecast 4000 4800 5600 7200 6400 5000 33000 66000
Output
Regular 5000 5000 5000 5000 5000 5000 30000 10 300000
Overtime 1600 1400 3000 16 48000
Subcontract 20 0
Output-Forecast 1000 200 -600 -600 0 0 0
Inventory 0
Beginning 0 1000 1200 600 0 0 0
Ending 1000 1200 600 0 0 0 0
Average 500 1100 900 300 0 0 2800 1 2800
Backlog
Total Cost 350800

Capacity = 5000, level value = 5500

Strategy/Plan: b. level strat, overtime maximum500, subcon maximum500, inventory

Period 1 2 3 4 5 6 7 8 Total Cst/U T. Cost
Forecast 4000 4800 5600 7200 6400 5000 33000 66000
Output
Regular 5000 5000 5000 5000 5000 5000 30000 10 300000
Overtime 500 500 500 500 500 2500 16 40000
Subcontract 500 500 20 10000
Output-Forecast 1500 700 -100 ### -400 0 0
Inventory 0
Beginning 0 1500 2200 2100 400 0 0
Ending 1500 2200 2100 400 0 0 0
Average 750 1850 2150 1250 200 0 6200 1 6200
Backlog
Total Cost 356200

Strategy/Plan: c. level strat, overtime maximum750, inventory

Period 1 2 3 4 5 6 7 8 Total Cst/U T. Cost
Forecast 4000 4800 5600 7200 6400 5000 33000 66000
Output
Regular 5000 5000 5000 5000 5000 5000 30000 10 300000
Overtime 750 750 750 750 3000 16 48000
Subcontract 0 20 0
Output-Forecast 1000 950 150 ### -650 0 0
Inventory 0
Beginning 0 1000 1950 2100 650 0 0
Ending 1000 1950 2100 650 0 0 0
Average 500 1475 2025 1375 325 0 5700 1 5700
Backlog
Total Cost 353700
130
130
SummerFun, Inc., produces a variety of recreation and leisure products. The production manager has
developed an aggregate forecast:
Month March April May June July Aug Sept Total
Forecast 50 44 55 60 50 40 51 350

Use the following information to develop aggregate plans:

-Regular production cost $80 per unit
-Overtime production cost $120 per unit
-Regular capacity 40 units per month
-Overtime capacity 8 units per month
-Subcontracting cost $140 per unit
-Subcontracting capacity 12 units per month
-Holding cost $10 per unit per month
-Back-order cost $20 per unit
-Beginning inventory 0 units

Develop an aggregate plan using each of the following guidelines and compute the total cost for
each plan. Which plan has the lowest total cost?
a. Use regular production. Supplement using inventory, overtime, and subcontracting as needed. No
backlogs allowed.
b. Use level strategy. Use a combination of backlogs, subcontracting, and inventory to handle
variations in demand.

Strategy/Plan: Chase, overtime, CAPACITY: REGULAR = 40, OVERTIME =8, SUBCON =12
Period 1 2 3 4 5 6 7 Total Cst/U T. Cost
Forecast 50 44 55 60 50 40 51 350 350
Output
Regular 40 40 40 40 40 40 40 280 80 22400
Overtime 8 8 8 8 8 3 8 51 120 6120
Subcontract 2 3 12 2 19 140 2660 350
Output-Forecast 0 4 -4 0 0 3 -3
Inventory
Beginning 0 0 4 0 0 0 3
Ending 0 4 0 0 0 3 0
Average 0 2 2 0 0 1.5 1.5 7 10 70
Backlog 20
Total Cost 31250

Strategy/Plan: level, inventory, subcon max 12, backlog CAPACITY REG = 40

Period 1 2 3 4 5 6 7 Total Cst/U T. Cost LEVEL VALUE = 350/7 =50
Forecast 50 44 55 60 50 40 51 350
Output
Regular 40 40 40 40 40 40 40 280 80 22400
Overtime 0
Subcontract 12 12 12 12 11 11 70 140 9800
Output-Forecast 2 8 -3 -8 1 0 0
Inventory
Beginning 0 2 10 7 0 0 0
Ending 2 10 7 0 0 0 0
 Average 1 6 8.5 3.5 0 0 0 19 10 190
Backlog 1 1 20 20
Total Cost 32410
G = 40
= 350/7 =50
Strategy/Plan: 50
Period 1 2 3 4 5 6 7 Total Ucost Tcost
Forecast 50 44 55 60 50 40 51 350 350
Output
Regular 40 40 40 40 40 40 40 280 80 22400
Overtime 8 4 8 8 8 8 44 120 5280
Subcontract 2 7 12 2 3 26 140 3640
Output-Forecast 0 0 0 0 0 0 0
Inventory
Beginning
Ending
Average 10
Backlog 31320
Total Cost
50 350
Strategy/Plan: CHASE, INVENTORY, SUBCON MAX 12, OVERTIME 8
Period 1 2 3 4 5 6 7 Total Ucost Tcost
Forecast 50 44 55 60 50 40 51 350
Output
Regular 40 40 40 40 40 40 40 280 80 22400
Overtime 8 8 8 8 8 3 8 51 120 6120
Subcontract 2 3 12 2 19 140 2660
Output-Forecast 0 4 -4 0 0 3 -3 0
Inventory 0
Beginning 0 0 4 0 0 0 3 0
Ending 0 4 0 0 0 3 0 0
Average 0 2 2 0 0 1.5 1.5 7 10 70
Backlog
Total Cost 31250
350
Strategy/Plan: 50
Period 1 2 3 4 5 6 7 Total Ucost Tcost
Forecast 50 44 55 60 50 40 51 350
Output
Regular 40 40 40 40 40 40 40 280 80 22400
Overtime 8 8 8 8 8 8 8 56 120 6720
Subcontract 2 2 2 2 2 2 2 14 140 1960
Output-Forecast 0 6 -5 -10 0 10 -1 0
Inventory 0
Beginning 0 0 6 1 0 0 1 0
Ending 0 6 1 0 0 1 0 0
Average 0 3 3.5 0.5 0 0.5 0.5 8 10 80
Backlog 9 9 18 20 360
Total Cost 31520