The president of Hill Enterprises, Terri Hill, projects the firm’s aggregate demand requirements over the next 8 months as follows:
Her operations manager is considering a new plan, which begins in January with 200 units on hand. Stock out cost of lost sales is $100 per unit. Inventory holding cost is $20 per unit per month. Ignore any idle-time costs. The plan is called plan A.
Plan A: Vary the workforce level to execute a “chase” strategy by producing 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 $5,000 per 100 units. The cost of laying off workers is $7,500 per 100 units. Evaluate this plan.
Chapter 13 problems 13.5:
Hill is now considering plan C. Beginning inventory, stockout costs, and holding costs are provided in Problem 13.3:
a) Plan C: Keep a stable workforce by maintaining a constant production rate equal to the average requirements and allow varying inventory levels.
b)Plot the demand with a graph that also shows average requirements. Conduct your analysis for January through August.
We we can see that the demand from January till February is below the average requirement and then from March till July the demand is above the the average requirement and then in the month of August, the demand goes below the average requirement.
Chapter 13 problems 13.9:
Mary Rhodes, operations manager at Kansas Furniture, has received the following estimates of demand requirements:
a) Assuming stockout costs for lost sales of $100 per unit, inventory carrying costs of $25 per unit per month, and zero beginning and ending inventory, evaluate these two plans on an incremental cost basis:
• Plan A: Produce at a steady rate (equal to minimum requirements) of 1,000 units per month and subcontract additional units at a $60 per unit premium cost.
• Plan B: Vary the workforce, which performs at a current production level of 1,300 units per month. The cost of hiring additional workers is $3,000 per 100 units produced. The cost of layoffs is $6,000 per 100 units cut back.
b) Which plan is best and why?
Chapter 13 problems 13.21:
Forrester and Cohen is a small accounting firm, managed by Joseph Cohen since the retirement in December of his partner Brad Forrester. Cohen and his 3 CPAs can together bill 640 hours per month. When Cohen or another accountant bills more than 160 hours per month, he or she gets an additional “overtime” pay of $62.50 for each of the extra hours: This is above and beyond the $5,000 salary each draws during the month. (Cohen draws the same base pay as his employees.) Cohen strongly discourages any CPA from working (billing) more than 240 hours in any given month. The demand for billable hours for the firm over the next 6 months is estimated below:
Estimate of Billable Hours
Cohen has an agreement with Forrester, his former partner, to help out during the busy tax season, if needed, for an hourly fee of $125. Cohen will not even consider laying off one of his colleagues in the case of a slow economy. He could, however, hire another CPA at the same salary, as business dictates.
a) Develop the new aggregate plan and compute its costs.
b) Comment on the staffing level with five accountants. Was it a good decision to hire the additional accountant?