Sawyer Furniture is one of the few remaining domestic manufacturers of wood furniture. In the current competitive environment, cost containment is the key to its continued survival. Demand for furniture follows a seasonal demand pattern with increased sales in the summer and fall months, culminating with peak demand in November.
a. The cost of production is $16 per unit for regular production, $24 for overtime, and $33 for subcontracting. Hiring and firing costs are $500 per worker. Inventory holding costs are $20 per unit per month. There is no beginning inventory. Ten workers are currently employed. Each worker can produce 50 pieces of furniture per month. Overtime cannot exceed regular production. Given the following demand data, design an aggregate production plan for Sawyer Furniture that will meet demand at the lowest possible cost.
b. In an attempt to stem the flow of jobs overseas, the local labor union has negotiated a penalty clause for layoffs. The new contract increases the firing cost per worker to $2500.
Create a revised aggregate plan with these new cost figures.
Assuming any subcontracting is, in fact, foreign production, does the penalty work? Why or why not?
Month Demand
January ............500
February ..........500
March ............1000
April ...........1200
May ............2000
June ..............400
July ............400
August ...........1000
September ............1000
October ..........1500
November .........7000
December ...........500