107.Fairview Industries is preparing its aggregate plan for the second half of the year.

The table below

contains monthly demand estimates and working days per month. Complete the table by
computing total demand, demand per day (for each month), and the average requirement (in units
per day) over the six-month planning horizon. Prepare a graph of forecast demand and level
production, by months, for the planning period. Label your graph carefully.

Month Expected Demand Production Days Demand per Day

July 18,000 20
August 21,000 23
September 17,500 21
October 12,500 21
November 12,000 20
December 13,500 21
TOTAL
Month Expected Demand Production Days Demand per Day
July 18,000 20 900.00
August 21,000 23 913.04
September 17,500 21 833.33
October 12,500 21 595.24
November 12,000 20 600.00
December 13,500 21 642.86
TOTAL 94,500 126 Average = 750
108.Eagle Fabrication has the following aggregate demand requirements and other data for the
upcoming four quarters.

Quarter Demand Previous quarter's output 1500 units

1 1300 Beginning inventory 200 units
2 1400 Stockout cost $50 per unit
3 1500 Inventory holding cost $10 per unit at end of quarter
4 1300 Hiring workers $4 per unit
Firing workers $8 per unit
Unit cost $30 per unit
Overtime $10 extra per unit
Which of the following production plans is better: Plan A—chase demand by hiring and firing; or
Plan B—produce at a constant rate of 1200 and obtain the remainder from overtime?

Plan A would cost $165,400, while Plan B would cost $167,400. In this case it is cheaper to
vary work force than to use overtime.
Plan A
109.Osprey Fabrication has the following aggregate demand requirements and other data for the
upcoming four quarters.

Quarter Demand Previous quarter's output 1300 units

1 1400 Beginning inventory 0 units
2 1200 Stockout cost $50 per unit
3 1600 Inventory holding cost $10 per unit at end of quarter
4 1500 Hiring workers $40 per unit
Firing workers $80 per unit
Subcontracting cost $60 per unit
Unit cost $30 per unit
Overtime $15 extra per unit

Which of the following production plans is better: Plan A—chase demand by hiring and firing;
Plan B—pure level strategy, or Plan C—1350 level with the remainder by subcontracting?
Plan A will cost $215,000, Plan B will cost $179,500, and Plan C will cost $183,500. Plan B is
the cheapest, by a small margin.
Plan A
110.A manufacturer of industrial seafood processing equipment wants you to develop an aggregate plan
for the four quarters of the upcoming year using the following data on demand and capacity.

Quarter Units Regular Over- Sub- Initial inventory 250 units

Time time contract Regular time cost $1.25/unit
1 200 400 80 100 Overtime cost $1.50/unit
2 750 400 80 100 Subcontracting cost 2.00/unit
3 1200 800 160 100 Carrying cost $0.50/unit/quarter
4 450 400 80 100 No back ordering is
allowed
a. Find the optimal plan using the transportation method.
b. What is the cost of the plan?
c. Does any regular time capacity go unused? How much in what periods?
d. What capacity went unused in this solution (list in detail)?

The optimal plan appears in the table below. A cost of 100 is assigned to "impossible" cells
(no back orders are allowed.) Cost increases 0.50 for each period past the current period
(carrying cost). The minimum cost solution is $3,360. Forty units of regular time capacity
went unused in period 1. Other unused capacity includes OT-1, 80; Sub-1, 100; Sub-2, 100;
and OT-4, 30; and Sub-4, 100.
Period 1 Period 2 Period 3 Period 4 Excess Capacity Row Total
Beginning inventory 190 0 60 0 0 250
Period 1 reg time 10 350 0 0 40 400
Period 1 overtime 0 0 0 0 80 80
Period 1 subcontracting 0 0 0 0 100 100
Period 2 reg time 0 400 0 0 0 400
Period 2 overtime 0 0 80 0 0 80
Period 2 subcontracting 0 0 0 0 100 100
Period 3 reg time 0 0 800 0 0 800
Period 3 overtime 0 0 160 0 0 160
Period 3 subcontracting 0 0 100 0 0 100
Period 4 reg time 0 0 0 400 0 400
Period 4 overtime 0 0 0 50 30 80
Period 4 subcontracting 0 0 0 0 100 100
Column Total 200 750 1200 450 450 3050
111.Washington Laundry Products, Inc., makes commercial and industrial laundry machines (the kinds
hotels use), and has these aggregate demand requirements for the next six months. The firm has
regular capacity for 200 units, and overtime capacity for 40 more. Currently, subcontracting can
supply up to 100 units per month, but the subcontracting firm may soon be unavailable.

Month Demand Costs and other data

1 220 Previous output level 150 units
2 160 Beginning inventory 100 units
3 200 Stockout cost $250 per unit
4 210 Inventory holding cost $100 per unit at end of month
5 200 Unit Cost, regular time $1,200 per unit
6 190 Subcontracting $2,000 per unit
Unit Cost, overtime $1,500 per unit
Hiring workers $200 per unit
Firing workers $500 per unit
Which is cheaper: to produce level, incurring back orders and inventory charges; or to produce a
base quantity of 120, using first, overtime, then subcontracting, to meet demand?

The cost of the level strategy is $1,326,000. The cost of the mixed strategy is $1,499,000. The
added holding costs of the level strategy are far cheaper than the added overtime and
subcontracting costs of the mixed strategy.
112.Reddick's Specialty Electronics makes weatherproof surveillance systems for parking lots. Demand
estimates for the next four quarters are 25, 9, 13, and 17 units. Prepare an aggregate plan that uses
inventory, regular time and overtime and back orders. Subcontracting is not allowed. Regular time
capacity is 15 units for quarters 1 and 2, 18 units for quarters 3 and 4. Overtime capacity is 3 units
per quarter. Regular time cost is $2000 per unit, while overtime cost is $3000 per unit. Back order
cost is $300 per unit per quarter; inventory holding cost is $100 per unit per quarter. Beginning
inventory is zero.

The data inputs for this problem, and the optimal solution, generated by microcomputer software,
appear below. Answer the following questions based on the scenario and the solution.
a.How many total units will be produced in quarter 1 for delivery in quarter 1?
b.How many units in total will be used to fill back orders over the four quarters?
c.What is the cost to produce one unit in Quarter 4 using overtime to deliver in quarter 1 (filling a
back order)?
d.At the end of quarter 3, what is the ending inventory of finished systems?
e.What is the total cost of the solution?
f.What is the average cost per unit

a. 15;
b. 10;
c. $3,900;
d. 0;
e. $132,200;
f. 132200 / 64 = $2,066
113.Osprey Machine Works has the following demand requirements and other data for the upcoming
four quarters.

Quarter Demand Previous quarter's output 2500 units

1 2300 Beginning inventory 200 units
2 2400 Stockout (backorder) cost $50 per unit
3 2600 Inventory holding cost $10 per unit at end of quarter
4 2100 Hiring workers $4 per unit
Firing workers $8 per unit
Unit cost $30 per unit
Overtime $10 extra per unit
What is the total cost of pursuing a level aggregate plan over the coming year?
Requirements total 9400 units, of which 200 are already in stock. A level rate of 2300 units will meet
demand while using up beginning inventory. Costs associated with this plan are:

Cost element Detail Extension

Firing $8 x 200 units for the reduction from 2500 $1,600
units to 2300 units
Holding There will be 200 units ending inventory at end $3,000
of Q1 and 100 units at end of Q2, creating an
inventory holding cost of $10 x 300 units
Stockout In Q3, 200 units go unfilled until Q4, for a $10,000
stockout cost of $50 x 200
Unit cost $30 x 9,200 $276,000
TOTAL $290,600.00

114.Golden Eagle Machine Works has the following demand requirements and other data for the
upcoming four quarters.

Quarter Demand Previous quarter's output 2500 units

1 2300 Beginning inventory 200 units
2 2400 Stockout (backorder) cost $50 per unit
3 2600 Inventory holding cost $10 per unit at end of quarter
4 2100 Hiring workers $4 per unit
Firing workers $8 per unit
Unit cost $30 per unit
What is the total cost of pursuing a chase aggregate plan over the coming year?
For a chase strategy, quarterly production should be Q1: 2100; Q2: 2400; Q3: 2600; and
Q4: 2100. Costs associated with this plan are:

Cost element Detail Extension

Firing Reductions are 400 units in Q1 and 500 units in $7,200
Q4. Costs are 900 x $8
Hiring Increases are 300 units in Q2 and 200 units in $2,000
Q3. Costs are 500 x $4
Unit cost $30 x 9,200 $276,000
TOTAL $285,200.00
 366

115.An electronics manufacturer makes video security systems for parking lots. Demand estimates for
the next four quarters are 15, 9, 23, and 17 units. Prepare an aggregate plan that uses inventory,
regular time, overtime, and back orders. Subcontracting is not allowed. Regular time capacity is
12 units for quarters 1 and 2, 15 units for quarters 3 and 4. Overtime capacity is 6 units per
quarter. Regular time cost is $20,000 per system, while overtime cost is $30,000 per unit. Back
order cost is $2000 per system per quarter; inventory holding cost is $500 per unit per quarter.
Beginning inventory is zero.

Complete the table of data inputs for solving this aggregate planning problem with the
transportation method. Specifically, how many sources are there, and how many destinations?
What is the supply from each source, and the demand of each destination? What is the cost of
each source-destination pair?
There are eight sources: regular time and overtime for each quarter. There are four destinations, one
for each quarter. The four demands are the quarterly demand estimates. The eight supplies are the
regular time and overtime capacities of each quarter. The cell costs for regular time begin at $20,000,
and increase rightward by the carrying cost increment, and increase downward by the backorder
increment. The data table appears below.
116.Houma Containers, Inc., makes industrial fiberglass tanks that are used on offshore oil platforms.
Demand for the next four months and capacities of the plant are shown in the table below. Unit
cost on regular time is $400. Overtime cost is 150% of regular time cost. Subcontracting is
available in substantial quantity but at a very high cost, $1100 per unit. Holding costs are $200 per
tank per month; back orders cost the firm $1000 per unit per month. Houma's management
believes that the transportation algorithm can be used to optimize this scheduling problem. The
firm has no beginning inventory and anticipates no ending inventory.

March April May June

Demand 300 500 300 350
Regular capacity 200 200 250 250
Overtime capacity 50 50 50 50
Subcontract cap. 150 100 100 150
a.How many units will be produced on regular time in June?
b.How many units will be produced by subcontracting over the four-month period?
c.What will be the inventory at the end of April?
d.What will be total production from all sources in April?
e.What will be the total cost of the optimum solution?
f.Does the firm utilize the expensive options of subcontracting and back ordering? When; why?
 (a) 250; (b) 350; (c) 0, and 50 units are back ordered; (d) 350; (e) $935,000; (f) they use
subcontracting every month; there are back orders in April filled with May production. The
firm has so little excess capacity, even with the short-term options, that it must utilize almost
every unit available, which forces the use of the more expensive options. The data table and
solution table appear below.

117.Fred's Fabrication has the following aggregate demand requirements and other data for the
upcoming four quarters.

Quarter Demand Previous quarter's output 800 units

1 700 Beginning inventory 0 units
2 900 Stockout cost $100 per unit
3 1200 Inventory holding cost $10 per unit at end of quarter
4 600 Hiring workers $20 per unit
Firing workers $40 per unit
Subcontracting cost $200 per unit
Unit cost $100 per unit
Overtime $50 extra per unit

Which of the following production plans is better: Plan A—chase demand by hiring and firing;
Plan B—pure level strategy, or Plan C—700 level with the remainder by subcontracting?

Plan A has cost of $378,000, plan B has cost of $368,500, and plan C has cost of $425,000.
Plan B has the lowest cost. Note that Plan C has an ending inventory of 100 units, which is
the result of level production which exceeds demand in the last quarter.
Plan A -- Chase strategy
118. Byron's Manufacturing makes tables. Demand for the next four months and capacities of the plant
are shown in the table below. Unit cost on regular time is $40. Overtime cost is 150% of regular
time cost. Subcontracting is available in substantial quantity at $75 per unit. Holding costs are $5
per table per month; back orders cost the firm $10 per unit per month. Byron's management
believes that the transportation algorithm can be used to optimize this scheduling problem. The
firm has 50 units of beginning inventory and anticipates no ending inventory.

March April May June

Demand 400 600 600 700
Regular capacity 400 400 400 400
Overtime capacity 100 100 100 100
Subcontract cap. 150 50 50 50
a. How many units will be produced on regular time in June?
b. How many units will be produced by subcontracting over the four-month period? c. What will
be the inventory at the end of April?
d. What will be total production from all sources in April? e. What will be the total cost of the
optimum solution?
f. Does the firm utilize the expensive options of subcontracting and back ordering? When; why?

(a) 400; (b) 250; (c) 0; (d) 600; (e) Total Cost = $109,750; (f) The firm uses subcontracting,
but not backordering; there is no production in one month for "delivery" in an earlier
month. Subcontracted quantities are 100 in March, 50 each in April, May, and June. The
data and solution tables appear below.
119.A small private university normally charges the same price —$200—per credit-hour for all courses
and for all students. While the university is pretty near capacity in the fall and spring, it finds that
its classrooms are only about 60 percent occupied during the summer session. A student of
operations management (who has recently read this chapter) wonders if yield management might
be useful to both the university and its students alike. This student, with help from some
economics majors, estimates a demand curve for summer course enrollment. Points on this
demand curve include 9000 credit-hours at the current rate of $200, 12,000 credit hours at $180,
15,000 credithours at $160, and 18,000 credit-hours at $140. Based on this demand curve, what
price point would best serve the university, if its objective is the greatest revenue for the summer
session?
The student must consider that since 9000 hours is 60 percent of capacity there is a
classroom capacity of 15,000 credit-hours during the summer session. The lowest price
generates the most revenue, but it is based on 18,000 credit-hours, which is beyond capacity.
At $200 per credit hour, revenues would be $1,800,000; at $180, revenues would be
$2,160,000; at $160, revenues would be $2,400,000; and at $140, demand exceeds capacity.
The $160 price point yields the most revenue of the feasible price points.
(Yield management, moderate) {AACSB: Analytic Skills}

120.A professional services firm is investigating yield management as a means of taking advantage of
unused capacity. Analysts for this firm estimate a demand curve for the firm's service, which is
sold by the hour. Points on this demand curve include 9000 hours at the current rate of $60 per
hour, 9500 hours at $55, 10,000 hours at $50, and 10,500 hours at $45. Based on this demand
curve, what price point would be best for the firm, if its objective is maximum revenue?
The yields of these price points are as follows: at $60 per hour, revenue is $540,000; at $55,
revenue is $522,500; at $50, revenue is $500,000; and at $45, revenue is $472,500. The firm
would be well advised not to lower its price, since that will not raise revenue. The lower
prices will generate more demand, and utilize some unused capacity, but the firm's revenues
will fall. (Demand in this case is pretty inelastic).
(Yield management, moderate) {AACSB: Analytic Skills}