Exercises:

1. a. Given the following forecast and steady regular output of 550 every month, what total
cost would result if overtime is limited to a maximum of 40 units a month, and subcontracting is
limited to a maximum of 10 units a month? Unit costs are:
 Regular output $20
 Overtime $30
 Subcontract $28
 Average Inventory $10
 Backlog $25
Month 1 2 3 4 5 6 Total Cost
Forecast 540 540 570 590 650 680 3570
Regular output 550 550 550 550 550 550 3300 66000
overtime 0 0 0 30 40 40 110 3300
Subcontract 0 0 0 10 10 10 30 840
Inventory Beginning 0 10 20 0 0 0 30 300
End 10 20 0 0 0 0 30 300
AVE 5 15 10 0 0 0 30 300
Backlog 0 0 0 0 50 80 130 3250

Total cost= 66000+ 3300+840+300+3250= 73690 $

b. Suppose now that backlogs are not allowed. Modify your plan from part a to accommodate
that new condition as economically as possible. The limits on overtime and subcontracting
remain the same.
Month 1 2 3 4 5 6 Total Cost
Forecast 540 540 570 590 650 680 3570
Regular output 550 550 550 550 550 550 3300 66000
overtime 10 40 40 40 40 40 210 6300
Subcontract 10 10 10 10 10 10 60 1680
Inventory Beginning 0 30 90 120 130 80 450 4500
 End 30 90 120 130 80 0 450 4500
AVE 15 60 105 125 105 40 450 4500
Backlog 0 0 0 0 0 0 0 0
Total cost = 66000+6300+1680+4500 = 78480 $
2. Nowjuice, Inc., produces Shakewell® fruit juice. A planner has developed an aggregate
forecast for demand (in cases) for the next six months.
Month May Jun Jul Aug Sep Oct
Forecast 4,000 4,800 5,600 7,200 6,400 5,000

Use the following information to develop aggregate plans.

 Regular production cost $12 per case
 Regular production capacity 5,000 cases
 Overtime production cost $18 per case
 Subcontracting cost $23 per case
 Holding cost $1 per case per month
 Beginning inventory 500 case
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? Note: Backlogs are not allowed.
a. Use level production. Supplement using overtime as needed.
Month May Jun July Aug Sep Oct Total Cost
Forecast 4000 4800 5600 7200 6400 5000 33000
Regular Production 5000 5000 5000 5000 5000 5000 30000 360000
overtime 0 0 0 1100 1400 0 2500 45000
Subcontract 0 0 0 0 0 0 0 0
Inventory Beginning 500 1500 1700 1100 0 0 4800
End 1500 1700 1100 0 0 0 4300
AVE 1000 1600 1400 550 0 0 4550 4550

Total cost = 360000+45000+4550 = 409550 $

b. Use a combination of overtime (500 cases per period maximum), inventory, and
subcontracting (500 cases per period maximum) to handle variations in demand.
 Month May Jun July Aug Sep Oct Total Cost
Forecast 4000 4800 5600 7200 6400 5000 33000
Regular Production 5000 5000 5000 5000 5000 5000 30000 360000
overtime 500 500 500 500 500 0 2500 45000
Subcontract 0 0 100 500 500 0 0 25300
Inventory Beginning 500 2000 2700 1600 400 0 4800
End 2000 2700 200 400 0 0 4300
AVE 2250 1600 1400 550 0 0 4550 4550

Month May Jun J`uly Aug Sep Oct Total Cost

Forecast 4000 4800 5600 7200 6400 5000 33000
Regular Production 5000 5000 5000 5000 5000 5000 30000 360000
overtime 500 500 500 500 500 0 2500 45000
Subcontract 0 0 100 500 500 0 0 25300
Inventory Beginning 500 2000 2100 1600 400 0 4800
End 2000 2100 1600 400 0 0 4300
AVE 1600 1400 550 0 0 4550 4550

c. Use overtime up to 700 cases per period and inventory to handle variations in demand.

3. Demand and capacity (in units) are forecast as follows:

Capacity Source (units) Jan Feb Mar Apr May Jun July Aug
e

Regular time 235 255 290 300 300 290 300 290

Overtime 20 24 26 24 30 28 30 30

Subcontract 12 16 15 17 17 19 19 20

Demand 255 294 321 301 330 320 345 340

 - The cost of producing each unit is 1000$ on regular time, 1300$ on overtime, and 1800$ on
a subcontract. Inventory carrying cost is 200$ per unit per month. There are 10 units beginning
inventory in stock, and no backorders are permitted from period to period
- Let the production (workforce) vary by using regular time first, then overtime, and then
subcontracting.
a) Set up a production plan by producing exactly what the demand is each month. What is
this plan’s cost?

Capacity
Jan Feb Mar Apr May June July Aug Total
Source (units)

Demand 255 294 321 301 330 320 345 340 2506

Regular time 235 255 290 300 300 290 300 290 2260

Overtime 10 24 26 1 30 28 30 30 179

Subcontract 0 15 5 0 0 2 15 20 57

Total cost 2595300

b) Regular time can be set exactly the same amount, 275 units per month. If demand cannot
be met there is no cost assigned to shortages and they will not be filled. Does this alter solution?
Why?

Capacity
Jan Feb Mar Apr May June July Aug Total
Source (units)

Demand 255 294 321 301 330 320 345 340 2506

Regular time 275 275 275 275 275 275 275 275 2200
Overtime 0 0 26 24 30 28 30 30 168
Subcontract 0 0 9 2 17 17 19 20 84
Inventory 30 11 0 0 0 0 0 0 41
Total cost 2577800
We can see that the total cost in plan B is lower than the total cost in plan A. Moreover, if
regular time can be set exactly the same amount, it will be easier to manage. So, plan B can be
the alternative solution.
 c) If overtime costs per unit rise from 1300$ to 1400$, will your answer to (a) change?
Why? What if overtime costs then fall to 1200$?
If overtime costs per unit rise from 1300$ to 1400$, the plan’s costs rise from 2595300 to
2613200. Because the capacity in regular time is not meet all demands in all months, so we need
to use overtime strategy. If overtime costs per unit from 1300$ to 1400$ , that mean the plan’s
cost is higher. It is similar in situation when overtime costs then fall to 1200$, the plan’s costs
fall to 2577400.

4. Filling in these blanks. (Maximum overtime is 20% production, backlogs are not allowed)

Month 1 2 3 4 5 6 7 8 9 Total
Demand 550 500 480 600 800 650 620 700 820 ……….
Beginning 90 190 310 310 110 132 208 204
INV 40 …. …. …. …. …. …. ……….
Production 600 600 600 600 600 600 580 580 580 ……….
Overtime 0 0 0 0 0 7 116 116 116 ……….
Ending INV 190 310 310 110 132 208 204
90 …. …. …. …. …. …. …. 80 ……….
Increased/
Decreased -50 -100 -120 0 +200 +50 +40 +120 240
Production ……….

5. The demand for product X is 20 units. Each unit of X requires 2A, 1B and 4C. Each unit of
B requires 3D and 1A. Each unit of A requires 1F and 2D. Each unit of C requires 1A and 3E.
Each unit of D requires 5F and 2G. The following table gives the time and inventory of each
part.

X A B C D E F G

Time (weeks) 1 2 3 1 2 1 4 3
Inventory (units) 2 5 4 10 15 4 10 30
a. Construct a product structure. Identify all levels, parents and components.
b. Prepare a time- phased product structure
c. Prepare an MRP plan for X.
 6. Use LFL, EOQ, POQ technique to find the suitable lot sizing alternative for the following
data:

Week 1 2 3 4 5 6 7 8

Gross Requirements 750 1250 1200 1100 800 900 1150 850

 Lead time 2 weeks

 Setup costs = 10.000.000VND
 Holding costs = 260.000 VND/year.
 Beginning inventory = 750 units and ending inventory requirement = 750 units

7. Use LFL, EOQ, POQ technique to find the suitable lot sizing alternative for the following
data:

Week 1 2 3 4 5 6 7 8 9 10 11 12

Gross 30 40 30 45 35 55 40 30 50 40 35 30
Requirements

 Lead time 0 weeks

 Setup costs = 216.000 VND
 Holding costs = 2.000 VND/week.
 Beginning inventory = 5 units

8. The production manager must determine the processing sequence for seven jobs through
the grinding and deburring departments. The same sequence will be followed in both
departments. The manager’s goal is to move the jobs through the two departments as quickly as
possible. The foreman of the deburring department wants the SPT rule to be used to minimize
the work-in-process inventory in his department
 a. Prepare a schedule using FCFS and SPT for the grinding department.

b. What is the flow time in the grinding department for the FCFS and SPT sequence? What is
the total time needed to process the seven jobs in both the grinding and deburring departments?